ROGER  W.  PRIOR, 


T 
63457^ 

1911 


V.J. 


THE  LIBRARY 

OF 

THE  UNIVERSITY 

OF  CALIFORNIA 

LOS  ANGELES 

SCHOOL  OF  LAW 
GIFT  OF 


Digitized  by  the  Internet  Arcliive 

in  2007  with  funding  from 

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http://www.archive.org/details/americancommerci02baysiala 


AMERICAN  COMMERCIAL  LAW 
SERIES. 

VOLUME  L  CONTRACra 

VOLUME  n.  NEGOTIABLE  PAPER. 

VOLUME  riL  SALES  OF  PERSONAL  PROPERTY. 

VOLUME  rV.  AGENCY;  PARTNERSHIP. 

VOLUME  V.  CORPORATIONS. 

VOLUME  VL  INSURANCE;  SURETYSHIP. 

VOLUME    Vn.    DEBTOR      AND      CREDITOR,      BANK- 
RUPTCY. 

VOLUME  Vin.    BANES  AND  BANKING. 
VOLUME     IX.    PROPSBTY. 


AMERICAN   COMMERCIAL  LAW  SERIES 
VOLUME  II 

THE  LAW  OF 

NEGOTIABLE  PAPER 


CORTAINIKG  THB  TEXT  OF 

THE  UNIFORM  NEGOTIABLE 
INSTRUMENTS  ACT 


QUESTIONS.  PROBLEMS  AND  FORMS 


Bt  ALFRED  W.  BAYS,  R  S.,  LL.  a 

IIBMBER  OF  CHICAGO  BAR  AND  PROFESSOR  OF  COMMERCIAL 

LAW,  NORTHWESTERN  UNIVERSITY  SCHOOL 

OF  COIIMBRCS 


CHICAGOi 

CALLAGHAN  &  COMPANY 

1911 


Copyrffht.  1911.  bjr 
CAI.I.AGHAN  &  COMPANY 

T 


THIS  SERIES  OP  BOOKS  IS 
EESPECTFULLY  DEDICATED  TO 

PROFESSOR  WILLARD  EUGENE  HOTCHKISS 

DEAN  OF  NORTHWESTERN  UNIVERSITY 

SCHOOL  OF  COMMERCE 

WHOSE  ZEAL  IN  THE  CAUSE  OF  COMMERaAL 

EDUCATION    HAS   BEEN  A   CONSTANT  SOURCB  09 

IKSPIKATIOM  TO  THE  AUTfiOB 


748367 


PREFACE  TO  THIS  VOLUME. 

In  preparing  this  book  the  author  considered  the 
plan  of  setting  out  the  Negotiable  Instruments  Act, 
section  by  section,  following  each  section  with  an 
explanation  and  illustrations.  But  for  several  rea- 
sons it  finally  appeared  advisable  to  follow  the  plan 
which  has  been  used,  giving  the  text  of  the  Act  in 
an  Appendix,  with  frequent  reference  to  it.  This 
involves  some  repetition,  but  not  enough  to  mate- 
rially increase  the  size  of  the  book. 

TTie  Negotiable  Instruments  Act  has  now  been 
adopted  in  a  great  majority  of  the  States,  and  this 
has  given  such  uniformity  to  the  law  that  a  book 
of  this  sort  gains  more  value  than  it  might  other- 
wise have.  The  States  in  which  this  uniform  act 
is  in  force,  are  named  in  the  note  at  the  foot  of 
page  4a 


TABLE   OF  CONTENTS 


PART  I. 

GENERAL   NATURE  AND   HISTORY. 
CHAPTER  1. 

WHAT  IS  A  NEGOTIABLK  INSTRUMENT. 
A*     Q«n«ral    Description   of   Negotiable   Paper. 

Sec     I.    Technical  significance  of  the  term  "nego- 
tiable." 

S.     Negotiability  of  Various   Instruments  Considered. 

(a)  The  instruments  which  are  negotiable  by  and 
subject  to  the  negotiable  instruments  law  or 
law  merchant. 

Sec.    a.     Promissory  notes. 
Sec     3.    Bills  of  exchange 
Sec    4.    Checks. 

(b)     Special  forms  of  the  above  instruments. 

Sec.     5.    Certificates  of  deposit 
Sec    6.    Bonds. 
Sec    7.     Bank  drafts. 

(c)  Documents  of  title  made  negotiable  by  special 
statute  but  not  subject  to  negotiable  instru- 
ments law  or  law  merchant. 

Sec.    8.     Bills  of  lading. 
Sec    9.    Warehouse  receipt*. 


10  Negotiablb  Paper. 

(d)    Sundry  instruments  assignable  but  noi 
negotiable. 

Sec.  la    Certificates  of  corporate  stock. 
Sec  II.    Mortgages. 

(e)     The  instruments  within  the  scope  of  this  text. 

Sec.  la.  The  negotiable  instnuaents  herein  con- 
sidered. 

CHAPTER  2. 

HISTORY  OF  THE  LAW  OF   NEGOTIABLE  PAPER. 

Sec.  13.  Continental  origin  and  adoption  by  Eng- 
lish merchants. 

Sec  14.  The  history  of  the  law  of  negotiable  pa- 
per in  the  United  States. 

PART  n. 

THE  FORMATION  OF  THE  CONTRACT. 
CHAPTER  8. 

EXPRESSION  IN   NEGOTIABLE  FORM:    (l)   fORMAL 
REQUISITES. 

Sec  15.    In  general. 

A.    'Mt  Mutt  be  In  Writing  and  Signed  by  the  Maker 
or   Drawer." 

See.  16.    Writing  and  signature. 


Amebican  Commercial  Law.  11 

B.  "Must  Contain  an  Unconditional  Promise  or  Order 

to  Pay  a  Sum  Certain  In  Money." 

Sec.  17.    Unconditional  promise  or  order, 
(i)     In  general. 

(2)  T^eference  to  the   transaction  or 
consideration, 

(3)  Reference  to  particular  ftind,  ac- 
count, credit,  etc. 

Sec.  18.    Certainty  of  sum  payable. 

(i)     In  general. 

(2)     When  sum  held  not  uncertain. 
Sec.  19.    Payment  in  money. 

C.  "Must    Be   Payable  on    Demand   or  at  a   Fixed  or 

Determinable    Future   Time.** 

Sec.  20.     Demand  paper. 

Sea  21.     Fixed  or  determinable  time. 

(i)     In  general. 

(2)     What     constitutes     determinable 
future  time. 

D.    "Must  Be  Payable  to  Order  or  to  Bearer.** 

Sec.  22.  Necessity  of  words  of  negotiability. 
Sec.  23.  When  instrument  payable  to  order. 
Sec  24.     When  instrument  payable  to  bearer. 

(i)     When  it   is   expressed  to  be  so 
payable. 

(2)  When  it  is  payable  to  a  person 
named  therein  or  bearer. 

(3)  When  it  is  payable  to  a  fictitious 
or  non-existing  person. 


12  Negotiable  Paper. 


(4)  When  the  name  of  the  payee  docs 
not  purport  to  be  the  name  of  any 
person. 

(5)  When  the  only  or  last  indorse- 
ment is  an  indorsement  in  blank. 


CHAPTER  4. 

EXPRESSION   IN    NEGOTIABLE  FORM  I    (2)    NON-ESSEN- 
TIAL  AND   NON-VITIATING    MATTERS   OF   FORM/ 
AND  RULES  OF  CONSTRUCTION. 

Sec.  25.    Authorizing  sale  of  collateral  securities. 
Sec.  26.    Authorizing  confession   of   judgment. 
Sec.  27.    Waiving  benefit  of  exemption  and  similar 

laws. 
Sec.  28.    Giving  holder  option  to  require  money  or 

something  else. 
Sec.  29.    Seal. 
Sec.  30.    Omission  of  date. 
Sec.  31.    Ante-dating  and  post-dating. 
Sec  32.    Technical  rules  of  constructtoo. 


CHAPTER  8. 

EXECUTION  AND  DELIVERY;  PARTIES  BOXTMlk 

Sec.  33.    Delivery  essential ;  when  presumed. 
Sec.  34.    Execution  in  blank. 
Sec.  35.   Execution  by  agent 


Amesican  Commebcial  Law.  13 

CHAPTER  6. 

CONSIDERATION   FOR   EXECUTIOlf. 

Sec  36.    Necessity  of  consideration. 
Sec.  37.     Consideration  presumed. 
Sec  38.    Adequacy  of  consideration. 

CHAPTER  7. 

THB  FORMATION  OF  THE  ACCEPTOR'S  CONTRACT. 

Sec.  39.    Definition  of  acceptance. 

Sec.  40.     How  acceptance  must  or  may  be  made. 

Sec.  41.     Acceptance  presumed   from   retention. 

Sec.  42.    Acceptance  of  incomplete  bill. 

Sec  43.    Acceptance  after  non-acceptance  or  after 

maturity. 
Sec  44.    Kinds  of  acceptance. 

(i)     What  constitutes  general  accept- 
ance. 

(2)     What    constitutes    qualified    ac- 
ceptance. 
Sec  45.    Effect  of  qualified  acceptance. 
Sec  46.    Acceptance  (certification)  of  check. 

CHAPTER  8. 

THE    FORMATION    OP   THE    CONTRACT   OF    PARTIES    FOR 
ACCOMMODATION    OR    FOR    HONOR. 

Sec  47.    Accommodation  party  defined. 
Sec  48.     Acceptance  for  honor. 
Sec  49.     Payment  for  honor. 


14  Negotiable  Papbo. 

PART  in. 

OPERATION  OF  THE  CONTRACT. 
CHAPTER  9. 

NEGOTIATION. 
A.    In  General  of  Negotiation  and  Indorsement. 

Sec.  50.    Meaning  of  negotiation. 

Sec.  51.     Kinds  of  negotiation. 

Sec.  52.     How  indorsement  accomplished, 
(i)     Must  be  in  writing. 
(2)     Words  sufficient  or  necessary. 

Sec.  53.    Attempted  partial  indorsement. 

Sec.  54.    Effect   of   indorsement   to   transfer   inci- 
dents. 

Sec.  55.  Presumptions  as  to  indorsement 
(i)  Presumption  as  to  time. 
(2)     Presumption  as  to  place. 

Sec.  56.    Miscellaneous    rules    concerning    indorse- 
ment, 
(i)     Indorsement  to  "cashier." 

(2)  Payee    or    indorsee    misdescribcd 
or  name  misspelled. 

(3)  Striking  out  indorsement. 

(4)  Negotiation  by  prior  party. 
B.    Kinds   of    Indorsement. 

Sec.  57.  Special  indorsement 

Sec.  58.  Blank  indorsement. 

Sec.  59.  Qualified  indorsement. 

Sec.  60.  Restrictive  indorsement 

Sec.  61.  Q>nditional  indorsement 


American  Commercial  Law.  15 

CHAPTER  10. 

THB  TITLB  OF  A  TRANSFEREE  OF   NEGOTXABLB  PAPBat 

Sec  62.    In  general. 

A.  Transferee    Must    Be   a    Holder    In    Due   Course   to 

Claim  Full  Benefit  of  Law  Merchant. 

Sec.  63.  Holder  in  due  course,  who  is. 

Sec.  64.  Complete  and  regular  instrument. 

Sec.  65.  Transferee  must  give  value. 

Sec.  66.  Transferee  must  take  in  good  faith. 

Sec.  67.  Transferee  must  take  before  instrument 

is  overdue. 

Sec  68.  Transferee  of  holder  in  due  course. 

B.  The   Defenses  which   Cannot    Be   Made   against   a 

Holder  in  Due  Course  as  Above  Defined. 

Sec.  69.     Payment  before  maturity. 

Sec.  70.     Set  oflF. 

Sec.  71.     Want  or  failure  of  consideration. 

Sec.  72.     Fraud  in  the  consideration  or  inducement. 

Sec.  73.  Theft  and  want  of  delivery  of  an  instru- 
ment payable  to  bearer. 

Sec.  74.  Lack  of  authority  to  complete  instrument 
where  holder  does  not  know  of  its  de- 
livery  in   incomplete   form. 

Sec.  75.  Illegality  of  consideration  except  where 
the  law  makes  the  instrument  for  such 
illegality  absolutely  void. 

Sec.  76.     Lack  of  authority  of  corporate  oflScer. 

Sec.  yy.     Lack  of  authority  of  partner. 


1<  Nbgotiablb  Papeb. 

C      Th«   Defense*   which    Can    Be   Set   up   agalnsl 
Holder  In  Due  Course  as  Above  Defined. 

Sec.  78.     Infancy. 
Sec.  79.     Forgery. 


Sec.  eb.    Material  alteration. 
Sec.  81.     Fraud  going  to  the  execution. 
Sec  82.     Illegality  which  by  statute  makes  instru- 
ment void. 

CHAPTER  U. 

THE  CONTRACT  OF  THE  PARTIEI. 

Sec.  83.  Of  maker  of  note. 

Sec.  84.  Of  drawer  of  bill. 

Sec.  85.  Of  drawee  of  bill  or  check. 

Sec.  86.  Of  acceptor. 

Sec.  87.  Of  unqualified  indorser. 

Sec.  88.  Of    one    who    negotiates    instrument   by 

mere  delivery. 

Sec.  89.  Of  qualified  indorser. 

Sec.  90.  Of  anomalous  indorser. 

Sec.  91.  Order  of  liability  among  indorsers. 

CHAPTER  n. 

THE  PROCEDURE  NECESSARY  TO  FIX  THE  UABILITT  OF 
THE   PARTIES. 

Sec,  92.    General  statement. 

A.    Presentment  for    Payment   at    Maturity   to   Partlee 
Primarily  Liable. 

Sec.  93.     Not  necessary  to  charge  parties  primarily 
liable. 


American  Commercial  Law.  17 

Presentment    for    payment    necessary  to 
charge  parties  secondarily  liable. 

What  presentment  sufficient. 
(i)     Presentment  by  whom. 

(2)  Date  of  presentment. 

(3)  Hour  of  presentment. 

(4)  Place  of  presentment. 

(5)  To   whom  presented. 

(6)  Instrument  exhibited. 

Sec.  96.    When  presentment   for  payment  not  re- 
quired. 

(,i)  Where  drawer  has  no  right  to 
expect  or  require  the  drawee  or  ac- 
ceptor to  pay. 

(2)  Where  an  instrument  is  made  Or 
accepted  to  accommodate  indorser. 

(3)  Presentment  for  payment  is  dis- 
pensed with  where  after  the  exercise 
of  due  diligence  it  cannot  be  made. 

(4)  Presentment  for  payment  is  dis- 
pensed with  where  the  drawee  is  a 
fictitious  person. 

(5)  Parties  entitled  to  presentment 
may  waive  it  by  word  or  conduct. 

B.    Presentment  of  Bill  for  Acceptance. 

Sec.  97.     Presentment  for  acceptance  necessary  in 
certain  cases  to  charge  drawer  and  in- 
dorsers. 
Sec.  98.     What  presentment  for  acceptance  suffi- 
cient. 

(i)     Party  who  must  make  present- 
ment for  acceptance. 
as— a 


18  Negotiable  Paper. 

(2)  Date  of  presentment  for  accept- 
ance. 

(3)  Hour  of  presentment  for  accept- 
ance. 

(4)  To   whom   presented   for   accept- 
ance. 

Sec.  99.     When  presentment  for  acceptance  is  ex- 
cused. 
Sec,  100.     Rights  of  holder  where  bill  not  accepted. 

C.    Notice  of  Dishonor. 

Sec.  loi.     Notice  of  dishonor  necessary  to  charge 

drawer  and  indorsers. 
Sec.  102.    What  notice  sufficient. 
Sec.  103.     When  notice  to  drawer  is  excused. 
Sec.  104.    When  notice  to  indorser  is  excused. 
Sec.  105.    When  notice  of  dishonor  waived. 

D.    Protest. 

'Sec.  106.    Protest  necessary  to  charge  drawer  and 

indorser  on  foreign  bill. 
Sec.  107.     Who  authorized  to  make  protest. 
Sec.  108.     Time,  place  and  manner  of  protest. 
Sec.  109.    Protest  dispensed  with  or  waived. 


American  Commercial  Law.  19 

PART  IV. 

DISCHARGE  OF  NEGOTIABLE  INSTRUMENTS. 
CHAPTER  13. 

MANNER  AND   EFFECT  OF  DISCHARGE, 

Sec.  no.    Meaning  of  term  "discharge." 

Sec.  III.     Causes  of  discharge  of  paper. 

Sec.  112.     Discharge  of  party  secondarily  liable. 

Sec.  113.     Effect  of  payment  by  party  secondarily 

liable. 
Sec.  114.    Matenial>  alteration,   as   releasing  those 

not  parties  thereto. 
Sec.  115.    Renunciation  of  rights. 

APPENDIX  A. 

TEXT  OF  UNIFORM   NEGOTIABLE  INSTRUMENTS  LAW. 

APPENDIX  B. 

FORMS. 

APPENDIX  C. 

TABLE  OF  INTEREST  LAWS. 

APPENDIX  D. 

QUESTIONS  AND   PROBLEMS. 


THE  LAW    OF  NEGOTIABLE 
PAPER. 

PART  I. 

GENERAL   NATURE  AND   HISTORY. 
CHAPTER  1. 

WHAT  IS  A  NEGOTIABLE  INSTRUMENT. 
A.    General  Description  of  Negotiable  Paper. 

Sec.  1.  TECHNICAL  SIGNIFICANCE  OF  THE  TERM 
"NEGOTIABLE."  By  the  term  "negotiable"  we  indi- 
cate that  certain  instruments,  so  described,  are  given 
by  law  a  property  by  virtue  of  which  they  may  be 
transferred  by  the  payee  therein,  and  his  transferees 
successively,  to  vest  in  each  succeeding  transferee  the 
title  thereto,  unaffected  by  certain  defenses  to  which 
they  might  have  been  subjected  in  the  hands  of  the  Im- 
mediate or  any  transferor,  and  to  which  non-negotiable 
paper  would  be  subject  notwithstanding  such  transfer; 
provided  the  transfer  is  made  according  to  the  rules 
established  to  govern  commercial  paper.  And  in  addi- 
tion to  such  transferability  such  paper  has  other 
peculiar  properties,  chiefly  for  the  purpose,  however, 
of  aiding  such  transferability. 

We  cannot  get  a  very  adequate  understanding  of 
the  nature  of  a  negotiable  instrument  except  through 
a  detailed  consideration  of  the  subject,  yet  we  may 

/(21) 


22  Negotiable  Papee. 

hope  to  know  at  the  outset  in  a  general  sort  of  a 
way  what  the  term  negotiabihty  means.  It  at  once 
suggests  the  idea  of  transferability,  and  that  is  in- 
deed its  most  important  and  governing  characteris- 
tic. It  is  a  principle  of  the  law  of  contract,  that 
.contractual  rights,  except  rights  for  personal  serv- 
iceSj  may  be  assigned  to  another;  but  they  cannot 
be  negotiated  unless  put  in  a  certain  forrn.  If  put 
in  that  form,  they  may  be  negotiated  simply  because 
the  law  has  so  established  it  for  the  conveniences  of 
trade. 

When  one  makes  a  contract  with  another  whereby 
he  secures,  or  seems  to  have  secured,  a  certain  right, 
as  for  instance,  to  have  a  salary  paid  him  upon  a 
certain  date,  the  law  permits  him  to  assign  that 
right  to  another.  This  cannot  injure  the  debtor,  for 
the  assignment  is  in  effect  no  more  than  a  direction 
by  the  creditor  for  the  debtor  to  pay  the  salary  to 
another  person;  the  contract  which  exists  between 
the  employer  and  employee  is  unaffected  in  its  obliga- 
tions and  duties.  Suppose,  however,  it  happens  that 
the  debtor  (the  employer)  has  defenses  or  counter- 
claims which  he  may  set  up  against  the  claim  for 
such  salary,  as,  that  the  employee  has  been  advanced 
a  part  of  it,  or  that  he  has  not  performed  the  serv- 
ices. It  would  not  be  just  to  permit  the  employee 
by  selling  his  claim,  or  apparent  claim,  to  prevent 
the  employer  to  set  up  his  defense  or  counterclaims, 
for  the  simple  reason  that  such  assignment  was  not 
contemplated  by  the  parties  as  an  object  of  the  con- 
tract. It  was  not  contemplated  by  them  that  a  pur- 
chaser of  the  debtor's  promise  could  take  that  prom- 
ise without  reference  to  the  transaction  out  of  which 


American  Commercial  Law.  23 

it  arose.  The  employer  did  not  mean  to  consent 
that  he  would  pay  the  salary  whether  earned  or  not, 
whether  he  has  counterclaims  or  not,  by  reason  of 
its  assignment  to  a  stranger,  leaving  the  employer 
to  his  perhaps  doubtful,  and  at  any  rate,  circuitous, 
remedy  against  the  employee.  The  law  therefore 
says  that  though  rights  of  this  sort  may  be  assigned, 
yet  they  must  be  taken  in  reference  to  the  transact 


Jtipn  out  of  3yhich  they  arise.  The  assignee  must 
step  into  the  assignor's  shoes  and  can  claim  no  lar- 
ger rights  than  that  assignor  could  claim. 

Yet  for  special  reasons,  it  may  be  the  desire  of 
this  employer  and  this  employee  to  create  a  form 
of  obligation  which  may  pass  upon  its  face  for  its 
full  face  value,  upon  which  the  apparent  debtor  shall 
have  in  effect  written:  "This  promise  of  mine, 
while  subject  to  defenses  so  long  as  not  transferred, 
is  put  in  this  form  in  order  that  a  transferee  for 
value  and  in  good  faith,  may  take  it  without  refer- 
ence to  the  transaction  out  of  which  it  arose.  I 
hereby  authorize  my  seeming  creditor  to  separate  Jj 
this  promise  from  his  obligation,  and  it  need  not^^^ 

jiioncern  a  purchaser  what  was  given,  or  whether  ^^\ 
anything  was  given,  so  long  as  he  does  not  know_.  i^|)^ 
^yhen  he  purchases  this  promise  that  I  have  any  dcj;^]^ 
fenses  against  its  enforcement.    I  have  put  my  prom-    ^V 
ise  in  this  form  so  that  my  promisee  may  by  selling 
it  virtually  separate  it  from  and  make  it  independent 
of  his  corresponding  obligation  to  me."  * 

1.  There  are,  however,  some  few  unusual  defenses  which 
may  be  set  up  against  even  the  innocent  purchaser  of  a 
negotiable  instrument,  as  we  shall  note  hereafter. 


24  Negotiable  Paper. 

In  order  to  accomplish  this  result,  and  give  to 
promises  a  quasi-monetary  value,  that  is,  to  make 
them  instruments  of  credit,  the  law  provides  certain 
forms,  which  indicate,  when  adopted  by  a  party,  that 
he  means  and  contemplates  their  transfer  by  the 
promisee  or  holder,  and  this  is  the  reason  why  we 
came  to  have  negotiable  instruments.  But  a  great 
body  of  rules  has  grown  up  which  governs  the  draw- 
ing of  such  instruments  and  governs  their  transfer. 

Inasmuch  as  the  assignment  of  rights  under  a 
contract  is  not  contemplated  except  incidentally  by 
the  parties,  neither  party  need  question  whether 
there  has  been  any  assignment  and  is  not  affected  by 
any  assignment  until  he  has  received  notice  of  the 
assignment.  Thus  if  after  assignment  of  a  salary  by 
an  employee,  the  employer,  having  no  notice  of  such 
assignment,  pays  it  to  the  employee,  he  cannot  be 
made  to  pay  it  over  again  to  the  assignee.  But  the 
maker  of  negotiable  paper  has  put  his  promise  in  that 
form  so  that  it  may  be  negotiated  if  desired,  and  he* 
must  always  act  with  that  possibility  in  mind.  Conse- 
quently no  notice  need  be  given  him,  and  he  must 
protect  himself  by  always  seeing  to  it  that  the  party 
to  whom  he  pays  money  has  in  his  possession  the 
paper  which  evidences  the  liability,  properly  in- 
dorsed, and  if  he  pays  that  paper  before  maturity 
he  must  take  it  up,  lest  it  be  further  negotiated. 

We  may  take  another  illustration  to  make  the 
paragraph  plainer: 

A,  a  jeweler,  has  sold  and  delivered  to  B  a  stone, 
known  to  him  to  be  a  topaz  worth  a  few  dollars, 
but  which  he  has  fraudulently  represented  to  be  a 
rough  diamond,  worth  $500.00,  and  for  which  B,  re- 
lying on  the  representation,  has  agreed  to  pay  him 


American  Commercial  Law.  25 

$500.00.  We  may  suppose  that  B  has  not  put  his 
promise  in  writing,  or  that  if  he  has  done  so,  the 
writing  does  not  contain  the  elements  established 
by  custom  and  law  as  indicative  of  the  parties'  in- 
tent to  make  the  contract  negotiable.  Now  the  law 
permits  A  to  transfer  his  rights  under  a  contract  of 
this  sort  and  this  transfer  is  called  an  assignment. 
A  accordingly  does  assign  to  C,  who  knows  nothing 
of  the  fraud  and  who  pays  A  $500.  B,  however, 
learning  of  the  fraud,  can  make  his  defense  against 
C  as  readily  as  he  could  have  done  against  A,  for 
though  A  could  transfer  his  rights  under  such  a 
contract,  he  could  transfer  no  more  than  his  rights. 
C  stands  in  A's  shoes.  But  let  us  suppose  that  when 
B  purchased  and  obtained  the  stone,  he  had  given 
a  promissory  note  to  A  in  the  sum  of  $500,  con- 
taining all  of  the  elements  required  to  make  an  in- 
strument negotiable,  and  that  before  its  maturity 
A  had  sold  the  note  for  value  to  C,  who  was  ignorant 
6f  the  fraud.  Under  this  assumption  B  cannot  make 
the  defense  against  C  that  he  could  have  made 
against  A.  A  can  by  negotiation  transfer  a  better 
title  than  he  had.  In  other  words,  puttmg  the  obli- 
gation in  negotiable  form  may  be  said  to  separate 
and  set  it  apart  from  the  rest  of  the  transaction  for 
purposes  of  negotiability. 

Negotiable  instruments  differ  from  other  simple 
contracts  in  this  threefold  manner: 

First:  In  the  quality  of  their  transferability  as 
indicated ; 

Second:  In  the  fact  that  a  consideration  vyiH  he 
presumed  iintiLthe._c^iitrary  is  shown ; 

Third:  In  the  fact  that  thrpf>  Hays  nf  gmr^ 
were  allowed  by  the  common  law,  meaning  that  the 


•W 


*vv 


4^y 


26  Negotiable  Papee. 

instrument  could  not  be  sued  on  until  three  days 
had  elapsed  after  the  date  named  in  it  for  its  ma- 
turity.    But  this  has  been  abolished  by  statute. 

Let  us  now  consider  certain  particular  instru- 
ments to  discover  whether  the  law  impresses  upon 
them  the  property  of  negotiability.  The  chief  of 
these,  we  will  find,  are  promissory  notes,  bills  of 
exchange,  and  checks;  the  law  merchant  being 
sometimes  referred  to  as  the  law  of  bills,  notes,  and 
checks.  But  even  such  instruments  are  not  negotia- 
ble unless  drawn  according  to  the  rules  established 
— containing  all  of  the  elements  of  negotiability 
hereinafter  discussed.  Yet  it  does  not  follow  that 
because  they  may  be  non-negotiable,  that  they  are 
for  that  reason  ineffective  as  contracts.  Thus  we 
shall  hereafter  see  that  _a  promissory  note  payable 
when  one  becomes  of  age  is  non-negotfable,  but  it 
may  well  be  the  expression  of  a  good  contract  be- 
tween the  parties. 

B.    Negotiability   of   Various    Instruments   Considered. 

(a)  The  instruments  which  are  negotiable  by  and 
subject  to  the  negotiable  instruments  law  or 
law  merchant. 

Sec.  2.  PROMISSORY  NOTES.  "A  negotiable  promis- 
sory note  within  the  meaning  of  this  act  is  an  uncon- 
ditional promise  in  writing,  made  by  one  person  to 
another,  signed  by  the  maker,  engaging  to  pay  on 
demand,  or  at  a  fixed  or  "determinable  future  time,  a 
funt  eitrtain  In  moi^pylo  order  or  to  the  bearer.  When 


American  Commebcial  Law.  2T 

a  note  Is  drawn  to  the  maker's  own  order,  it  Is  not 
complete  until  Indorsed  by  him." 3 

A  promissory  note,  as  the  name  indicates,  is  the 
expression  of  a  promise.  To  be  valid  as  a  contract 
between  the  parties,  there  must  be  all  the  essential 
elements  necessary  to  the  formation  of  a  contract. 
To  be  a  negotiable  instrument,  it  must  contain  other 
elements.  What  those  elements  are  is  indicated  in 
the  definition  above,  but  as  they  are  hereafter  more 
particularly  discussed,  they  will  not  be  further  no- 
ticed here. 

The  parties  to  a  negotiable  promissory  note  are: 
the  maker,  who  is  the  promisor,  and  the  payee,  or 
the  one  to  whom  the  promise  to  pay  is  made.  But 
the  payee  may  be  described  as  "the  bearer,"  in  which 
event  the  instrument  may  be  transferred  with  or 
without  indorsement.  If  the  payee  is  named  he 
must  indorse,  and  he  is  then  called  an  indorser,  as 
are  all  other  subsequent  transferors  who  place  their 
names  on  the  back  of  the  instrument. 

The  power  to  evidence  a  debt  in  the  form  of  a 
negotiable  promissory  note  secures  to  one  a  better 
credit  than  perhaps  he  could  otherwise  obtain.  For 
it  may  in  any  particular  instance  enable  his  creditor 
to  immediately  realize  on  the  debt  by  a  sale  to  an- 
other, who  purchasing  before  maturity  and  with  no 
knowledge  of  any  defense  against  the  note,  knows 
that  he  can  enforce  it  according  to  its  tenor,  re- 
strained only  by  the  insolvency  of  both  the  maker 
and  the  payee,  who  is  now  indorser,  and  even  this 
restraint  would  be  removed  were  the  note  adequately 

2.  Uniform  Negotiable  Instruments  Act,  Sec.  184.  (Ap- 
pendix A.) 


28  Negotiable  Paper. 

secured.  And  this  advantage  of  securing  credit  that 
might  not  in  a  particular  case  be  otherwise  obtain- 
able, comes  of  the  fact  that  a  promissory  note  has 
some  of  the  attributes  of  money,  and  to  a  limited 
extent,  may  serve  in  place  thereof.  And  in  a  suit 
upon  a  promissory  note  it  is  not  necessary  to  prove 
the  consideration,  that  is,  the  transaction  out  of 
which  it  arose,  unless  a  defense  is  made  denying  con- 
sideration. 

Forms  of  negotiable  promissory  notes  are  set  out 
in  Appendix  B. 

Sec.  3.  BILLS  OF  EXCHANGE.  "A  bill  of  exchange 
Is  an  unconditional  order  in  writing,  addressed  by  one 
person  to  another,  signed  by  the  person  giving  it, 
requiring  the  person  to  whom  it  is  addressed  to  pay 
on  demand,  or  at  a  fixed  or  determinable  future  time, 
a  sum  certain  in  money,  to  order  or  to  bearer." 3 

A  bill  of  exchange  is  an  order  drawn  by  one  per- 
son, in  favor  of  another  upon  a  third.  To  be  negoti- 
able it  must  contain  the  elements  indicated  in  the 
definition,  but  as  these  are  discussed  hereafter,  they 
need  not  be  further  noticed  here. 

There  are  two  sorts  of  bills  of  exchange,  foreign 
and  inland.  "An  inland  bill  of  exchange  is  a  bill 
which  is,  or  on  its  face  purports  to  be,  both  drawn 
and  payable  within  this  state.  Any  other  bill  is  a 
foreign  bill.  Unless  the  contrary  appears  on  the  face 
of  the  bill,  the  holder  may  treat  it  as  an  inland  bill." 
The  importance  of  distinguishing  between  foreign 
and  inland  bills  will  appear  later  herein. 

3.     Uniform  Negotiable  Instruments  Act,  Sees.  126-131. 


American  Commercial  Law.  29 

The  party  who  makes  the  bill  of  exchange  is 
called  the  drawer;  the  person  in  whose  favor  the 
order  is  made  is  called  the  payee;  the  party  upon 
whom  the  order  is  made  is  called  the  drawee;  if  he 
accepts  he  is  called  the  acceptor,  and  he  is  not  liable 
upon  the  instrument  until  he  does  accept.  The  in- 
strument may  be  indorsed  either  before  or  after 
acceptance. 

Bills  of  exchange  are  sometimes  drawn  in  "sets." 
This  is  usually  true  only  of  foreign  bills  drawn  on 
distant  parties,  and  means  that  there  are  several  pa- 
pers, called  "parts,"  usually  three,  similarly  drawn, 
numbered  consecutively,  and  referring  to  each  other ; 
and  altogether  constituting  only  one  bill.  The  pur- 
pose of  drawing  a  bill  in  a  set  is  to  insure  the  prompt 
arrival  of  the  bill  at  its  destination.  This  is  accom- 
plished by  sending  each  part  separately.  The  par- 
ties are  protected  from  becoming  liable  on  all  parts 
by  the  fact  that  each  refers  to  the  others,  and  their 
outstanding  existence  is  thereby  made  known.  If 
the  drawee  accepts  one  part  he  accepts  the  bill,  and 
should  not  write  his  acceptance  on  more  than  one 
part,  for  he  may  become  thereby  liable  to  pay  the 
bill  to  purchasers  of  the  various  parts.  So  in  paying 
the  bill  he  should  take  up  the  accepted  part.  The 
idea  of  drawing  bills  in  sets  is  that  any  part  may  be 
treated  as  the  bill  of  exchange;  if  any  part  is  ac- 
cepted, that  is  an  acceptance  of  the  bill;  if  any  ac- 
cepted part  is  indorsed,  that  is  an  indorsement  of 
the  bill;  if  any  part  is  paid  or  otherwise  discharged, 
that  is  a  payment  or  other  discharge  of  the  bill. 
There  is  no  especial  danger  in  drawing  a  bill  in  parts 
if  the  rules  are  complied  with ;  but  by  careless  treat- 


80  Negotiable  Paper. 

ment  of  the  various  parts,  a  two  or  three  fold  lia- 
bility might  be  incurred. 

The  right  to  draw  an  instrument  in  the  form  of 
a  bill  of  exchange,  given  by  the  law  this  property 
of  negotiability,  gives  one,  as  in  the  case  of  promis- 
sory notes,  and  for  similar  reasons,  a  better  means 
of  securing  credit  than  he  might  otherwise  have, 
and  that  springs  from  the  fact  that  the  bill  of  ex- 
change, like  the  promissory  note,  has  a  quasi-mone- 
tary value,  and  the  liability  of  several  parties,  pri- 
mary, or  secondary,  may  go  to  support  its  credit. 
But  it  also  has  the  great  advantage  of  serving  to 
adjust  accounts  or  draw  credit  from  one  place  to 
another  without  the  actual  transfer  of  funds. 

To  illustrate  some  uses  of  the  bill  of  exchange, 
we  may  suppose  these  situations : 

A,  being  in  immediate  need  of  funds,  and  being 
informed  by  B,  to  whom  he  has  applied  for  a  loan, 
that  B  will  be  able  to  get  the  money  for  him  if  the 
security  or  credit  furnished  is  satisfactory,  there- 
upon draws  a  bill  of  exchange  on  C,  a  business 
friend,  requesting  C  to  accept  it,  and  advising  C 
that  he.  A,  will  have  ample  funds  to  pay  the  bill  be- 
fore it  matures.  C  thereupon  accepts  the  bill.  By 
means  of  C's  acceptance  whereby  C  loans  A  his 
credit,  A  is  thus  enabled  to  secure  from  B  the  money 
needed.  This  bill  may  pass  through  a  number  of 
hands  before  it  matures,  being  supported  by  the 
credit  of  C,  and  of  A,  and  of  every  one  indorsing 
it.    Or,  Again ; 

A  is  B's  creditor  and  C's  debtor.  He  draws  a  bill 
of  exchange  on  B  in  favor  of  C.  B  accepts  this  and 
thus  A  pays  his  account  without  any  transfer  of 
funds.    Again; 


American  Commercial  Law.  31 

A  has  a  place  of  business  in  Chicago,  and  often 
finds  it  necessary  to  transfer  funds  to  parties  living 
in  or  around  New  York,  B  has  a  place  of  business 
in  New  York  and  often  finds  it  necessary  to  trans- 
fer funds  to  parties,  living  in  or  around  Chicago. 
They  arrange  that  each  shall  accept  the  paper  of  the 
other.  In  this  way  they  accomplish  their  purpose 
of  putting  the  various  payees  in  funds,  without  any 
transfer  of  coin  or  currency  between  New  York  and 
Chicago,  except  upon  accountings  made  between 
them  at  stated  intervals. 

A  form  of  bill  of  exchange  is  set  out  in  Appen- 
dix B. 

Sec.  4.    CHECKS.     "A  check  Is  a  bill  of  exchange 
drawn  on  a  bank,  payable  on  demand." « 

A  check  may  be  called  a  kind  of  a  bill  of  ex- 
change. It  differs  from  other  bills  of  exchange  in 
these  particulars : 

(i)     It  is  drawn  on  a  bank  or  banker. 

(2)  It  is  payable  on  demand;  bills 
are  either  payable  on  demand  or  at  a 
fixed  or  determinable  future  time. 

(3)  It  is  drawn  by  one  who  thereby 
asserts  that  he  is  a  depositor  in  the 
bank  or  with  the  banker  and  that  he 
has  funds  there  sufficient  to  cover 
the  check. 

Checks  are  as  far  as  possible  governed  by  the  same 
rules  which  govern  bills  of  exchange. 

4.  Uniform  Negotiable  IiiBtruments  Act,  Sees.  186-189 
(Appendix  A). 


82  Negotiable  Papee. 

(b)     Special  forms  of  the  above  instruments. 

Sec.  5.  CERTIFICATES  OF  DEPOSIT.  A  certificate 
of  deposit  Is  an  instrument  Issued  by  a  banic  reciting  a 
deposit  of  a  certain  sum  of  money,  payable  on  demand 
or  at  a  fixed  time.  It  is  negotiable,  If  drawn  properl/f 
being  a  form  of  promissory  note. 

Banks  issue  certificates  of  deposit,  bearing  inter- 
est, and  payable  either  on  demand  or  at  a  time  fixed. 
They  are  negotiable  if  containing  the  elements  of 
negotiable  paper,  for  the  simple  reason  that  they 
are  then  negotiable  promissory  notes.  Therefore 
we  may  say  that  a  negotiable  certificate  of  deposit 
is  a  promissory  note  made  by  a  bank  to  the  order  of 
its  depositor. 

Sec.  6.  BONDS.  A  bond  Is  an  evidence  of  Indebted- 
ness issued  by  a  municipal,  public  or  private  corpora- 
tion payable  at  a  date  certain  and  is  negotiable  when 
drawn  In  accordance  with  the  rules  governing  com- 
mercial paper. 

A  bond  is  an  instrument  evidencing  the  indebted- 
ness of  a  corporation,  issued  under  the  seal  thereof, 
usually  referring  to  some  mortgage  or  trust  deed 
given  to  secure  the  debt  whereof  it  is  the  evidence. 
If  it  contains  sufficient  words  of  negotiability  and 
is  not  clogged  with  any  condition  or  stipulation 
rendering  it  conditional  or  uncertain,  it  is  negotiable 
for  the  reason  that  it  is  then  a  promissory  note. 

Bonds  are  of  two  sorts: 

(i)  Registered  bonds:  or  bonds  which  are  trans- 
ferable by  registration  of  the  name  of  the  transferee 


American  Commercial  Law.  33 

on  the  books  of  the  company  where  the  payee's  name 
is  registered.  Their  negotiability  is  said  to  be  tem- 
porarily withdrawn. 

(2)  Coupon  bonds:  or  bonds  to  which  are  at- 
tached interest  coupons  to  be  clipped  off  and  pre- 
sented for  payment  when  due.  lliese  coupons  are 
usually  in  form  and  effect  promissory  notes,  and  may 
circulate  as  such  before  or  after  due,  independent 
of  the  main  instrument.  Coupon  bonds  are  nego- 
tiable. 

Bonds  are  issued  in  series.  They  are  usually  se- 
cured by  a  mortgage  in  the  form  of  a  trust  deed,  to 
a  certain  person,  who  represents  the  bond  holders 
as  trustee. 

Sec.  7.  BANK  DRAFTS.  A  bank  draft  Is  a  bill  of 
exchange  payable  on  demand,  drawn  by  one  banker  or 
bank  upon  another  banker  or  bank  to  the  order  of  a 
person  therein  named.  It  Is  negotiable  as  usually 
drawn. 

If  one  being  in  Chicago  desires  to  send  money  to 
New  York  and  for  some  reason  does  not  or  cannot 
accomplish  his  result  by  use  of  his  personal  check, 
he  may  buy  a  draft  on  a  New  York  Bank.  This  is 
simply  a  bill  of  exchange  in  which  drawer  and 
drawee  are  banks  and  bankers.  As  usually  drawn 
such  drafts  are  negotiable. 

(c)  Documents  of  title  made  negotiable  bv  special 
statute  but  not  subject  to  nepoitaMe  instru- 
ments law  or  law  merchant^ 

Sec.  8.  BILLS  OF  LADING.  A  bill  of  lading  Is  an 
Instrument  Issued  by  a  carrier  of  goods  reciting  receipt 


34  Nbgotllslb  Papek. 

of  certain  goods  therein  described  and  evidencing  the 
contract  between  the  parties  as  to  the  details  of' trans- 
portation. It  Is  not  negotiable  unless  specially  made  so 
by  statute,  and  even  then  it  is  not  governed  by  the 
peculiar  rules  of  the  law  merchant  but  ie  negotiable 
only  In  a  limited  way. 

A  bill  of  lading  is  transferable  to  effect  the  trans- 
fer of  the  title  of  the  goods  whereof  it  is  the  symbol. 
By  the  cprnmon  law,  bj lis  of  lading  are  assignable, 
not  negotiable.  Now  in  many  of  the  states  statutes 
have  been  passed  conferring  a  peculiar  and  limited 
negotiability  on  bills  of  lading  when  drawn  in  a  cer- 
~lain  way.  When  "such  is  the  case  such  instruments  are 
"TTOt  negotiable  in  the  sense  that  a  promise  or  order 
to  pay  money  may  be  negotiable  and  they  are  not 
governed  by  the  negotiable  instruments  law.  These 
statutes  provide  that  a  bill  of  lading  may  be  drawn 
to  the  order  of  a  certain  person  therein  named,  or 
bearer,  or  they  may  be  drawn  simply  to  a  certain 
person.  In  the  first  case  the  goods  are  deliverable 
"to  A,  or  his  order,"  or  "to  the  order  of  A"  or  "to 
bearer ;"  in  the  second  case  the  goods  are  deliverable 
"to  A."  In  the  first  case  the  bill  of  lading  is  known 
as  an  "order  bill,"  and  is  negotiable  in  this  limited 
sense  mentioned ;  in  the  second  case  the  bill  of  lading 
is  known  as  a  "straight  bill"  and  is  not  negotiable, 
but  simply  assignable.  If  an  order  bill  of  lading  is 
issued  by  a  carrier  it  must  take  notice  that  such  bill 
may  be  negotiated  and  therefore  must  not  deliver 
up  the  goods  to  any  one  unless  the  bill  of  lading  is 
produced  by  such  party,  properly  indorsed.  If  a 
straight  bill  of  lading  is  issued  by  a  carrier,  it  need 
not  assume  that  the  bill  of  lading  has  been  assigned 
and  may  therefore  deliver  up  the  goods  to  the  con- 


American  Commebcial  Law.  35 

signee  named  in  such  bill  of  lading  without  his  pro- 
duction of  the  bill  of  lading,  unless  it  has  received 
notice  from  the  assignee  of  such  bill  that  such  bill 
has  been  assigned  to  him,  and  such  assignee  may 
then  obtain  the  goods  upon  his  production  of  the 
bill  of  lading  as  evidence  that  he  is  the  assignee 
thereof.    See  Volume  3  of  this  Series. 

Sec.  9.  WAREHOUSE  RECEIPTS.  A  warehouse  re- 
refpt  Is  not  negotiable  by  the  common  law.  Some  states 
have  passed  statutes  conferring  upon  such  Instruments 
when  drawn  In  a  certain  way  the  same  sort  of  limited 
and  peculiar  negotiability  possessed  by  a  bill  of  lading 
as  described  In  thb  section  above. 

Many  of  the  states  are  adopting  the  uniform  ware- 
house receipt  law.  Such  law  divides  warehouse  re- 
ceipts into  order  receipts  and  straight  receipts,  just 
as  the  uniform  bills  of  lading  act  divides  bills  of 
lading.  What  has  been  said  of  bills  of  lading  in  the 
above  section  may  be  applied  here.  Warehouse  re- 
ceipts are  not  negotiable  except  by  the  aid  of  such 
a  statute  and  then  are  negotiable  in  the  limited  way 
mentioned.    See  Volume  3  of  this  Series. 

It  is  better  to  refer  to  bills  of  lading  and  ware- 
house receipts  as  Negrotiable  Documents  of  Title  and 
to  bills,  notes  and  checks  as  Negotiable  Instruments 
or  Negotiable  Paper. 

(d)     Sundry  instruments  assignable  but  not  nego- 
tiable. 

Sec.  10.  CERTIFICATES  OF  CORPORATE  STOCK. 
A  stock  certificate  Is  an  Instrument  Issued  by  a  corpo* 
ration  reciting  that  the  bearer  or  person  named  therein 


86  Negotiable  Papee. 

I«  the  owner  of  the  number  of  shares  In  the  corporation 
as  therein  stated.     It  Js   freely    transferable    but    not 
jiegotlable.     ^.^^  fct>eW^Ui«^ 

One  of  the  objects  of  incorporation  is  to  secure 
a  free  transfer  of  shares  without  affecting  in  any- 
way the  existing  order  of  affairs  in  the  corporation. 
This  transfer  is  accomplished  by  means  of  the  certi- 
ficate of  stock  which  is  issued  to  every  stockholder. 
Yet  it  cannot  be  said  that  a  stock  certificate  is 
negotiable;  it  is  simply  assignable.  It  is  not  subject 
to  the  rules  governing  commercial  paper.  A  further 
consideration  of  such  instruments  should  be  sought 
in  the  Law  of  Corporations.  See  Volume  5. 

Sec.  11.  MORTGAGES.  A  mortgage  Is  conveyance  or 
lien  given  on  real  or  personal  property  as  a  security  for 
a  debt.  It  Is  not  negotiable,  but  In  some  states  statutes 
confer  a  quasi-negotiability. 

Mortgages  are  assignable  by  the  mortgagee,  but 
not  negotiable,  being  securities  for  debts,  and  not 
the  evidences  thereof.  But  the  notes  which  accom- 
pany mortgages  are  negotiable  if  correctly  drawn, 
and  indorsement  of  such  notes  operates  to  transfer 
the  mortgage.  In  some  states,  statutes  have  been 
passed  to  the  effect  that  if  a  mortgage  secures  and 
refers  to  a  negotiable  promissory  note,  it  shall  also 
be  negotiable  in  the  sense  that  the  defenses  shall  not 
be  set  up  to  defeat  foreclosure  proceedings  which 
could  not  be  set  up  in  a  suit  on  the  note  on  account 
of  the  note's  negotiable  character. 


AMBEICAN   COMMEEOIAL  LAW.  37 


(e)     The  instruments  within  the  scope  of  this  text. 

Sec.  12.  THE  NEGOTIABLE  INSTRUMENTS 
HEREIN  CONSIDERED.  The  negotiable  Instruments 
hereinafter  discussed  are  only  those  properly  falling 
under  the  uniform  negotiable  Instruments  law,  and 
not  under  special  statutes,  that  is,  bills,  notes,  and 
checks  and  special  varieties  thereof.  These  are  the 
Instruments  which  constitute  the  proper  subject-matter 
of  "The  Law  of  Negotiable  Paper." 


While  various  statutes  in  different  states  have 
attempted  to  confer  upon  various  instruments  a 
negotiable  or  quasi-negotiable  character^  the  dis- 
cussion of  them  does  not,  after  all,  fall  properly 
under  a  treatment  of  the  law  of  commercial  paper. 
"Commercial  paper"  as  it  is  commonly  understood 
means  paper  evidencing  a  debt  ultimately  reducible 
to  money,  and  not  calling  for  the  delivery  of  other 
property.  It  treats  of  the  law  of  bills,  notes,  and 
checks,  ^^''e  shall  hereafter  consider  only  those  three 
forms  of  instruments.  What  is  said  shall  refer  to 
bonds,  certificates  of  deposit,  bank  drafts  or  any 
instrument  payable  in  money,  simply  for  the  reason 
that  they  are  bills,  rtotes  or  checks.  The  discussion 
will  have  nothing  to  do  with  and  will  not  apply  to 
warehouse  receipts,  bills  of  lading,  or  any  instru- 
ment which  does  not  contain  a  promise  or  order  to 
pay  money. 


.      CHAPTER  2. 

HISTORY    AND    ORIGIN    OF    NEGOTIABLE    PAPER. 

Sec.  13.  CONTINENTAL  ORIGIN  AND  ADOPTION  IN 
ENGLAND.  Bills  of  exchange  originated  among  the 
Florentine  and  Venetian  merchants.  They  came  into 
use  in  England  and  with  promissory  notes  became 
negotiable   by   the   custom   of   merchants. 

Foreign  bills  of  exchange  are  thought  to  have 
been  invented  by  the  Florentine  and  Venetian  mer- 
chants in  the  12th  or  13th  century  as  a  means  of 
transmitting  credit  from  one  country  to  another 
without  the  need  of  actually  transfering  money. 
The  time  of  their  first  use  in  England  is  uncertain. 
Bills  of  exchange  were  not  at  first  negotiable,  and 
did  not  pass  from  hand  to  hand  as  they  now  do,  but 
became  so  in  the  i6th  or  in  the  early  part  of  the  17th 
century. 

Inland  bills  and  promissory  notes  came  into  use 
in  England  about  the  middle  of  the  17th  century. 
One  of  the  Judges  of  England,  Lord  Holt,  in  the 
early  part  of  the  i8th  century,  doubted  the  nego- 
tiability of  promissory  notes,  and  the  Statute  of  3 
and  4  Anne,  c.  9,  was  passed  to  declare  them  nego- 
tiable. 

Bills  and  notes  were  first  negotiable  by  the  cus- 
tom of  merchants  and  then  by  reason  of  the  univer- 
sality of  such  custom,  by  the  common  law.  Many 
statutes  have  since  been  passed  in  respect  to  such 
instruments,  but  are  in  declaration  of  or  addition 

.(38) 


American  Commercial  Law.  39 

or  amendment  to  the  common  law  whereby  they 
were  first  negotiable.  Lord  Holt's  opinion  in  respect 
to  promissory  notes  is  believed  to  have  been  error. 
In  1878  Judge  M.  D.  Chalmers  published  a  Di- 
gest of  the  English  Law  of  Bills,  Notes  and  Checks. 
His  work  attracted  much  attention  and  praise,  and 
his  services  were  procured  to  draft  a  bill  which 
should  put  the  law  of  England  in  the  form  of  a 
Code,  and  in  1882  the  English  Bills  of  Exchange  Act 
was  enacted  by  Parliament. 

Seo.  14.  NEGOTIABLE  PAPER  IN  THE  UNITED 
STATES.  By  the  adoption  of  the  common  law  the 
American  states  adopted  the  law  of  negotiable  paper. 
And  the  law  has  developed  therein  according  to  the 
needs  of  the  commercial  world. 

The  American  commonwealths  adopted  the  Eng- 
lish common  law.  They  thereby  adopted  the  law 
of  negotiable  instruments  as  it  was  at  the  date  which 
governs  the  adoption.  Statutes  have  been  passed 
from  time  to  time  which  amend  the  common  law, 
but  this  legislation  up  to  very  recently  has  been  of  a 
detached  sort.  After  Judge  Chalmers'  Act  was 
passed  in  England,  the  need  of  a  similar  codification 
was  felt  in  this  country.  It  was  really  much  more 
needed  on  account  of  the  arbitrary  division  of  our 
country  into  various  legislative  jurisdictions.  In  1890 
the  legislature  of  New  York  had  authorized  the 
appointment  of  commissioners  to  confer  with  com- 
missioners from  other  states  in  respect  to  uniformity 
in  legislation.  Shortly  afterwards  commissioners 
were  appointed  by  other  states  and  the  Commis- 
sioners on  Uniformity  of  Legislation  came  to  be 


\ 


AO  Negotiablb  Papbb. 

widely  representative.  These  commissioners  pro- 
cured in  1895  the  services  of  Mr.  J.  J.  Crawford  to 
draw  up  a  Code;  and  the  results  of  his  labors  were 
adopted  in  1896  and  recommended  to  the  various 
states  for  passage.  New  York  was  the  first  state 
to  act  upon  such  recommendation  but  the  Uniform 
Negotiable  Instruments  Law,  with  some  minor 
changes  in  various  instances  is  in  force  now  in  the 
states  set  out  in  the  note  below.*^  The  text  of  the 
Uniform  Act  is  given  in  Appendix  A  and  should 
be  carefully  studied  in  connection  with  the  Study. 

5.  The  Negotiable  Instruments  Act  has  been  adopted  in 
the  following  states:  Alabama,  Arizona,  Colorado,  Con- 
necticut, District  of  Columbia,  Florida,  Hawaii,  Idaho,  Illi- 
nois, Iowa,  Kansas,  Kentucky,  Louisiana,  Maryland,  Massa- 
chusetts, Michigan,  Missouri,  Montana,  Nebraska,  Nevada, 
New  Hampshire,  New  Jersey,  New  Mexico,  New  York,  North 
Carolina,  North  Dakota,  Ohio,  Oklahoma,  Oregon,  Pennsyl- 
vania, Rhode  Island,  Tennessee,  Utah,  Virginia,  Washington, 
West  Virginia,  Wisconsin,  Wyoming. 


PART  n. 

THE  FORMATION  OF  THE  CONTRACT. 
CHAPTER  3. 

EXPRESSION  IN  NEGOTIABLE  FORM:      (l)    FORMAL 
REQUISITES. 

Sec.  15.  IN  GENERAL.  Certain  elements  are  required 
by  law  to  be  present  In  any  instrument,  as  essential 
to  negotiability.  While  it  cannot  be  said  that  there 
are  any  particular  words,  exclusively  necessary  to  ex- 
press these  elements,  still  strict  adherence  to  tine  forms 
of  expression  approved  by  usage  is  advisable,  that  there 
may  be  no  room  for  doubt. 

The  law  merchant  requires  that  certain  elements 
be  present  to  render  an  instrument  negotiable.  What 
these  essential  requirements  are,  it  is  the  object 
of  the  present  chapter  to  enquire.  It  may  aid  in  the 
comprehension  of  the  subject,  however,  to  set  them 
briefly  forth  here  at  the  beginning,  as   follows: 

(i)  "It  must  be  in  writing  and  signed  by  the 
maker  or  drawer; 

(2)  "Must  contain  an  unconditional  promise  or 
order  to  pay  a  sum  certam  m  money; 

(3)  "Must  be  payable  on  demand,  or  at  a  fiygd 
or  determinable  future  time. 

(4)  *'Must  be  payable  to  order  or  to  bearer ; 

(41) 


42  Negotiable  Papee. 

(5)  "Where  the  instrument  is  addressed  to  a 
drawee,  he  must  be  named  or  otherwise  indicated 
therein   with   reasonable   certainty."  ^ 

In  the  expression  of  these  elements,  there  is  cus- 
tomarily no  great  variety  of  form.  By  usage  cer- 
tain forms  have  become  well  known,  and  it  is  highly 
advisable  that  recognized  forms  be  used,  if  the  inten- 
tion is  to  create  a  negotiable  instrument.  For  it  is 
highly  important  that  the  negotiability  of  a  docu- 
ment be  easily  determinable.  Such  instruments, 
having  some  of  the  qualities  of  money  and  being 
purchased  in  the  way  of  trade,  should  have  their 
character  plainly  impressed  upon  them;  therefore 
the  simpler  the  form,  the  better,  so  long  as  it  express 
all  the  elements.  As  the  Illinois  Supreme  Court  has 
said:  "By  the  law  merchant  and  by  the  statutes  of 
the  states  in  aid  thereof,  negotiable  instruments 
occupy  a  highly  useful  and  valuable  place  in  the 
commerce  and  business  of  our  people.  There  is  no 
other  form  of  contract  known  that  in  so  few  words 
may  contain  so  many  well  understood  and  thoroughly 
established  legal  rights  and  liabilities."  ®* 

Often  the  negotiability  of  instruments  is  pre- 
vented by  the  use  of  too  many  words  rather  than  by 
the  use  of  too  few.  It  is  sometimes  said  that  a 
negotiable  instrument  must  not  "carry  luggage;"  it 
must  not  be  clogged  with  burdens.  We  shall  see 
therefore  that  it  must  not  contain  qualifications, 
stipulations,  etc.,  whereby  conditions  or  uncertain- 
ties are  imported  into  it.  Perhaps  in  any  particular 
case  it  is  desired  to  make  conditions  and  qualify 

6.    Uniform  Negotiable  Instruments  Act,  Sec  1. 
6a.  Smith  v.  Myers,  207  Illinois  Reports,  126. 


AMEEICAN  C0MMEEC5IAL  LAW.  43 

the  promise  or  order.  Then,  of  course,  it  should  be 
done;  but  it  should  likewise  be  understood  that  the 
instrument  so  made  is  not  negotiable. 

A.  "It  Must  Be  In  Writing  and  Signed  by  the  Maker  or 

Drawer." 

Sec.  16.  WRITING  AND  SIGNATURE.  A  negotiable 
instrument   must   be  written   and   signed. 

Rights  secured  through  oral  promises  may  be 
assignable  but  never  negotiable,  no  matter  what 
words  are  used  to  express  them.  The  term  "writ- 
ing" includes  "print."  The  writing  may  be  in  lead 
or  ink,  though  it  is  hardly  necessary  to  say  that  the 
latter  is  preferable. 

So  it  must  be  signed.  It  is  a  rule  that  no  party 
can  be  liable  on  a  negotiable  instrument  as  maker, 
drawer,  or  acceptor  unless  he  has  signed  it,  by  him- 
self or  his  duly  authorized  agent.  The  name  signed, 
however,  may  be  an  assumed  one.  Thus  if  a  note 
should  be  signed  by  the  namee  of  a  partnership,  con- 
taining, say  fifty  partners,  thus  "General  Manufac- 
turing Company,  by  John  Jones,"  all  the  partners 
would  be  individually  liable  thereon,  for  they  would 
all  be  named  in  this  fictitious  name;  assuming,  of 
course,  that  the  person  signing  the  note  had  real  or 
apparent  authority  to  bind  the  firm,  as  stated.  A 
signature  should  never  be  typewritten  or  printed. 

B.  "Must  Contain  an  Unconditional  Promise  or  Order 

to  Pay  a  Sum  Certain  In   Money." 

Sec.  17.  UNCONDITIONAL  PROMISE  OR  ORDER.  A 
negotiable  Instrument  "must  contain  an  unconditional 
promise  or  order ." 


44  Negotiablb  Papee. 

(1)  In  general.  Absolute  promise  or  order  Is  essen- 
tial. 

A  note  must  contain  an  absolute  promise,  a  bill 
or  check,  an  absolute  order,  to  make  them  negotiable. 
The  introduction  of  any  condition  in  an  instrument 
is  fatal  to  its  negotiable  character,  and  the  perform- 
ance or  happening  of  the  condition  does  not  confer 
negotiability.  The  certainty  or  absoluteness  of  the 
promise  or  order  must  appear  from  the  language  of 
the  instrument,  not  from  external  events.  Any  con- 
dition inserted  in  the  instrument  is  fatal  to  its  nego- 
tiable character  (though  it  may  well  be  the  state- 
ment of  a  good  non-negotiable  contract),  but  we 
may  briefly  discuss  the  chief  ones  under  the  head- 
ings just  below. 

(2)  Reference  to  the  transaction  or  consideration. 
If  the  promise  or  order  is  made  conditioned  upon  the 
performance  of  consideration,  negotiability  is  de- 
stroyed; but  a  mere  reference  to  the  transaction 
which  gives  rise  to  the  instrument,  whether  executed 
or  executory,  does  not  in  itself  condition  the  promise 
or  order. 

Of  course  as  between  the  parties  themselves, 
where  the  consideration  consists  in  a  promise  to  do 
some  act  or  to  deliver  some  thing  and  that  act  is  not 
done  and  that  thing  not  delivered,  the  party  prom- 
ising to  pay  may  set  up  the  failure  of  the  other  party 
to  do  or  deliver  what  he  promised,  notwithstanding 
that  the  promise  or  order  is  absolute  in  its  terms 
according  to  the  requirements  of  the  negotiable 
instruments  act.  But  it  is  to  be  considered  that  if 
the  maker  or  drawer  or  the  acceptor  inserts  express 


American  Commbecjial  Law.  45 

terms  in  the  instrument  that  it  is  not  payable  except 
upon  certain  conditions,  he  thereby  intends  to  notify 
any  possible  purchaser  that  he  must  take  it  subject 
to  the  conditions  imposed  and  that  such  instrument 
is  not  meant  to  have  a  negotiable  character. 

One  who  becomes  the  transferee  of  negotiable 
paper  knowing  that  there  is  no  consideration  to  sup- 
port the  paper,  or  that  it  has  failed  or  that  the  con- 
tract has  been  broken,  is  subject  to  these  defenses. 
One  of  the  main  purposes,  however,  for  putting  a 
promise  into  negotiable  form  is  to  prevent  those 
apparently  indebted  thereon  from  setting  up  that 
the  contract  out  of  which  the  paper  arose  has  been 
broken  by  the  payee,  or  that  there  was  no  contract 
upon  which  the  paper  was  founded.  A  purchaser  of 
negotiable  paper  is  entitled  to  presume  that  which 
is  generally  the  fact  that  a  negotiable  instrument  has 
been  given  for  "value  received,"  either  in  the  shape 
of  an  act  now  performed  or  a  promise  of  a  future 
act.  That  this  consideration  may  fail  or  that  the 
contract  may  be  broken  by  the  payee  is  a  possibility, 
as  the  purchaser  must  know,  yet  it  does  not  concern 
him  whether  this  has  occurred  or  is  occurring  so 
long  as  he  has  no  actual  knowledge  that  that  is  the 
case.  The  law  protects  him  unless  he  knows  of  the 
defense  of  no  consideration,  failure  of  consideration, 
or  breach  of  contract.  He  may  say  in  effect:  "I 
am  buying  from  B  a  note  made  by  A  to  B's  order. 
Inasmuch  as  this  note  has  been  put  in  negotiable 
form  the  law  allows  me  as  a  purchaser  to  presume 
that  B  gave  A  something  for  which  A  made  his  note 
to  B.  The  thing  given  may  have  been  a  horse,  or 
a  loan  of  money  or  a  promise  to  perform  work  or 
any  other  thing  for  which  parties  may  bargain.     B 


16  Negotiable  Papee. 

may  have  given  A  the  thing,  or  he  may  merely  have 
given  his  promise  thereafter  to  give  the  thing.  This 
is  no  concern  of  mine.  B  may  have  broken  his  con- 
tract. The  horse,  or  whatever  it  was,  may  have  been 
worthless,  the  promise  may  not  have  been  kept. 
This  does  not  concern  me  so  long  as  I  did  not  know 
before  I  purchased  this  paper  that  such  was  the  fact." 
Now  suppose  that  the  purchaser  of  this  paper  is 
informed  at  the  time  the  note  is  purchased,  and  it  is 
so  stated  in  the  note,  that  it  was  a  horse  for  which 
the  note  was  given.  Does  the  fact  that  he  has  knowl- 
edge of  the  particular  sort  of  transaction  instead  of 
a  general  presumption  that  there  was  a  considera- 
tion, affect  his  rights  ?  Obviously  it  makes  no  differ- 
ence. He  need  no  more  assume  that  the  particular 
contract  of  which  he  is  informed  has  been  broken 
any  more  than  he  need  assume  that  the  contract 
whose  existence  he  is  entitled  to  presume  in  the 
absence  of  such  knowledge  has  been  broken.  Con- 
sequently it  is  well  settled  that  the  mere  fact  that 
the  particular  transaction  out  of  which  the  instru- 
ment arose,  or  the  consideration,  is  stated,  does  not 
affect  the  negotiability  if  the  instrument  is  other- 
wise correctly  drawn.  If  however,  the  terms  of  the 
instrument  provide  that  its  operation  is  to  depend 
upon  the  performance  of  the  contract  as  recited, 
this  is  obviously  a  provision  made  for  the  purpose 
of  qualifying  its  character  and  depriving  it  of  nego- 
tiability for  it  places  a  condition  upon  its  opera- 
tion. The  promise  then  becomes  conditional.  The 
mere  recital,  then,  of  the  consideration  does  not 
affect  the  negotiability  of  the  instrument.  But  a 
provision  that  in  any  way  makes  the  instrument 
subject  to  the  performance    of    the    consideration 


Ameeican  Commeecial  Law.  47 

destroys  negotiability,  and  the  instrument  becomes 
the  expression  of  a  non-negotiable  contract. 

One  should  he  warned  however,  to  scrutinize  with 
the  utmost  care  any  instrument  which  sets  forth  the 
transaction  and  be  very  sure  that  the  statement 
no  way  qualifies  the  promise  or  order. 

In  one  case^  these  facts  appear: 

Siegel,  Cooper  &  Co.,  merchants  of  Chicago,  con- 
tracted with  one  D.  Dalziel,  for  street  car  advertis- 
ing to  be  placed  by  him,  and  gave  in  consideration 
for  his  undertaking  the  following  note: 

"$300.  Chicago,  March  5,  1887. 

On  July  1,  1887,  we  promise  to  pay  D.  Dalziel,  or  order, 
the  sum  of  three  hundred  dollars,  for  the  privilege  of  one 
framed  advertising  sign,  size  —  x —  inches,  one  end  of  each 
of  one  hundred  and  fifty  nine  street  cars  of  the  North  Chicago 
City  Railway  Co.,  for  a  term  of  three  months,  from  May  15, 
1887.  SnJGEL,  CooPEB  &  Oo." 

On  the  day  of  the  date  of  this  instrument  when 
Dalziel  received  it,  he  indorsed  it  for  value  to  the 
Chicago  Trust  &  Savings  Bank. 

The  advertising  promised  by  Dalziel  was  never 
done,  and  the  instrument  was  refused  payment  for 
that  reason.  But  the  bank  contended  that  this 
defense  of  failure  of  consideration  could  not  be 
asserted  against  it  as  a  purchaser  in  good  faith  and 
for  value  of  a  negotiable  instrument,  and  on  this 
theory  brought  suit.  The  defense  of  the  makers 
was  that  the  instrument  was  not  negotiable  because 
it  showed    (as    they    claimed)    that    the    payment 

7.    Siegel  t.  Bank,  131  Illinois  Reports,  669. 


48  Negotiable  Papeb. 

depended  upon  a  contract  to  be  performed,  and 
therefore,  because  non-negotiable,  the  transferee 
took  it  subject  to  such  defenses  as  might  be  inter- 
posed against  his  transferror. 

The  court  decided  that  the  note  was  negotiable 
and  allowed  the  bank  to  recover  judgment  thereon; 
saying  in  part: 

"If  it  be  conceded,  as  it  must,  that  a  condition 
inserted  in  a  promissory  note,  postponing  the  day 
of  payment  until  the  happening  of  some  uncertain 
or  contingent  event,  will  destroy  its  negotiability 
*  *  *  yet  under  the  authorities,  if  by  the  instru- 
ment the  maker  promises  to  pay  a  sum  certain  at  a 
day  certain,  to  a  certain  person  or  his  order,  such 
instrument  must  be  regarded  as  negotiable,  although 
it  also  contains  a  recital  of  the  consideration.  *  *  *" 

In  another  case,^  a  suit  was  brought  on  a  prom- 
issory note  in  the  usual  form,  except  that  it  con- 
tained the  words  "given  for  a  patent  right."  It  was 
sold  by  the  payee  and  when  suit  was  brought  by  the 
holder,  the  maker  set  up  that  the  note  was  secured 
through  fraud  by  which  he  was  sold  a  worthless  pat- 
ent right,  and  claimed  the  right  to  assert  this  defense 
against  the  purchaser  of  the  note  on  the  theory  that 
this  recitation  made  it  non-negotiable,  or  put  the 
purchaser  on  notice. 

The  court  in  deciding  that  the  note  was  negotiable, 
said  in  part:  "Mercantile  paper  by  legal  inference 
imports  a  consideration.  But  if  this  implication  is 
strengthened  by  a  statement  on  the  face  of  the  paper 
that  there  was  a  consideration,  and  in  what  the  con- 

8.    Hereth  t.  Meyer,  33  Indiana  Reports,  611. 


American  Commercial  Law.  49 

sideration  consisted,  can  it  be  said   that  this  will 
impair  or  degrade  the  security?" 

The  following  cases  show  a  different  result. 

This  instrument  was  given  :^ 

"Chicago,  July  12,  1877. 
Mrs.  Martha  A.  Miller: 

Please  pay  to  the  Excelsior  Stone  Company,  or  order,  for 
etone  in  your  buildings,  $600  in  installments,  as  follows: 
$200  when  first  floor  joists  are  in;  $200  when  building  is 
ready  for  the  roof ;  $200  when  stoops  are  finished ;  and  charge 
same  to  my  account.  James  Pabrott. 

Accepted  July  12,  1877. 

Martha   A.    Miller." 

This  instrument  is  not  a  negotiable  instrument,  as 
payment  is  to  be  made  only  as  work  progresses  and 
upon  certain  things  being  done.  Anyone  taking  this 
instrument,  though  giving  value,  having  no  notice 
and  acquiring  it  before  maturity,  would  take  it  sub- 
ject to  the  defenses  which  might  have  been  made 
against  the  payee  therein. 

Another  note^°  read  "i2  months  after  date,  we 
promise  to  pay  to  ourselves  or  order  $321.25  for 
value  received,  payable  in  Boston  and  subject  to  a 
policy."  The  court  held  that  this  reference  to  a 
policy  rendered  the  note  non-negotiable  and  im- 
pressed it  as  a  contract  merely  assignable  and  sub- 
ject to  defenses  in  the  hands  of  the  assignee. 

The  principle  is  illustrated  by  these  cases,  that 
a  mere   recital   of  the   consideration,   even  though 

9.  Miller  v.  Excelsior  Stone  Co.,  1  Illinois  Appellate  Re- 
ports, 273. 

10.  Am.  Exch.  Bank  v.  Blanchard,  7  Allen  (Massachu- 
eetts),  333. 

a  B— 4 


60  Negotiable  Paper. 

that  consideration  appears  to  be  executory  in  nature, 
does  not  in  itself  destroy  negotiability,  but  if  the 
promise  is  in  any  way  qualified  by  a  reference  to 
the  consideration,  the  instrument  may  express  a 
good  contract  and  be  assignable  but  it  is  not  nego- 
tiable. 

(3)  Reference  to  particular  fund,  account,  credit, 
etc.  A  promise  or  order  to  be  negotiable  must  be  on 
the  general  credit  of  the  maker  or  drawer,  and  not  of 
a  particular  fund  or  account.  Yet  a  mere  reference 
to  a  fund  or  account  to  indicate  the  source  of  re- 
imbursement or  for  bookkeeping  purposes  does  not 
hinder  negotiability. 

If  a  promise  or  order  is  made  to  pay  out  of  or  by 
means  of  a  certain  fund,  negotiability  is  prevented, 
for  the  reason  that  the  fund  may  not  be  ample.  That 
it  is,  in  fact,  ample,  is  immaterial;  the  negotiability 
of  an  instrument  cannot  rest  upon  such  extrinsic  cir- 
cumstance. One  having  funds  with  another,  or 
being  a  creditor  of  that  other,  may  give  an  order 
upon  such  other  to  transfer  the  funds  or  pay  the 
debt  to  a  third.  That  could  not  be  a  negotiable 
bill  of  exchange;  it  would  operate  as  an  assignment 
(which  a  bill  of  exchange  does  not)  ;  but  it  would 
not  be  drawn  on  the  general  credit  of  the  drawer. 

It  is  no  objection  however  that  the  fund  or  an 
account  be  referred  to  in  order  to  indicate  how  the 
drawee  shall  upon  payment  re-imburse  himself,  pro- 
vided that  there  would  still  be  a  right  of  recourse 
to  him  if  the  fund  were  not  sufficient.  The  negotia- 
ble instrument  law  in  this  respect  provides,  that  the 
promise  or  order  is  unconditional  when  there  is  "an 


American  Commeecial  Law.  51 

indication  of  a  particular  fund  out  of  which  reim- 
bursement is  to  be  made,  or  a  particular  account  to 
be  debited  with  the  amount."  ^^ 
An  order  read  as  follows :  ^^ 

"Stabkey,  N.  y,,  Jany.  6,  1869, 
To  A.     You  will  please  pay  to  M.,  or  order,  the  sum  of 
$2,000.00,  on  demand,  and  deduct  the  same  from  my  share 
of  the  profits  of  our  partnership  business  in  malting. 

(sd)     B." 
on  which  was  indorsed: 
"Accepted,  Feb.  6,  1869.     (sd)    A." 

This  was  a  direction  to  pay  out  of  a  particular 
fund  and  was  not  on  B's  general  credit.  In  other 
words,  had  there  been  no  profits,  or  not  sufficient 
profits,  A  could  not  have  charged  the  deficiency  to 
B,  for  B  could  have  replied :  "I  directed  you  to  pay 
out  of  a  certain  fund  but  you  saw  fit  to  advance 
money  to  supply  the  deficiency  of  that  fund.  This 
my  order  did  not  authorize,  nor  your  acceptance 
bind,  you  to  do." 

The  court  said  in  part:  "The  true  test  would 
seem  to  be  whether  the  drawee  is  confined  to  the 
particular  fund,  or  whether  though  a  specified  fund 
is  mentioned,  he  would  have  the  power  to  charge 
the  bill  up  to  the  general  account  of  the  drawer,  if 
the  designated  fund  should  turn  out  to  be  insufficient. 
In  the  final  analysis  of  each  case,  it  must  appear 
that  the  alleged  bill  of  exchange  is  drawn  on  the 
general  credit  of  the  drawer." 

11.  Uniform  Negotiable  Instruments  Act,  Bee.  3. 

12.  Adapted  from  Hunger  r.  Shannon,  61  New  York  Ex- 
ports, 251. 


52  Negotiable  Paper. 

In  the  case  of  an  assignment  of  a  fund  or  debt, 
there  is  a  direction  to  the  debtor  to  pay  it  to  the 
assignee  named.  In  the  case  of  a  bill  referring  to  a 
fund,  there  is  a  direction  to  the  drawee  to  pay  a 
certain  amount,  and  having  done  so,  then  to  reim- 
burse himself  out  of  the  fund  mentioned,  or  if  in- 
sufficient, to  charge  the  balance  up  to  the  general 
credit  of  the  drawer. 

It  may  be  noted  here  that  if  an  order  is  really 
an  assignment  of  a  fund  or  credit  it  needs  no  accept- 
ance to  give  the  assignee  a  right  to  sue  the  debtor 
upon  it,  as  the  right  of  assignment  by  the  creditor  is 
not  dependent  on  the  debtor's  assent.  But  a  drawee 
of  a  bill  of  exchange  cannot  be  made  liable  on  the 
instrument  until  he  accepts  it,  and  this  even  though 
it  amounts  to  a  breach  of  contract  or  duty  as  be- 
tween himself  and  the  drawer.  This  is  illustrated 
in  the  case  of  a  bank  check.  The  bank  is  under 
contract  with  the  depositor  to  pay  his  checks  if  his 
deposit  is  ample  to  cover  them.  Yet  the  payee  of  the 
check  can  take  no  action  against  the  bank  if  it  re- 
fuses to  accept  or  pay  the  check,  but  is  left  to  his 
rights  against  the  drawer.  If  the  giving  of  the  check 
amounted  to  an  assignment,  the  assignee  could  de- 
mand payment  of  the  bank  and  have  judgment  if 
it  refused  to  recognize  the  assignment  without  cause. 

Sec.  18.  CERTAINTY  OF  SUM  PAYABLE.  Promisa 
or  order  must  be  "to  pay  a  sum  certain." 

(1)  In  general.  Certainty  of  amount  payable, 
determinable  from  the  language  of  the  instrument  it- 
self,   Is  essential   to   negotiability. 

Certainty  of  sum  payable  must  appear  from  the 
Instrument  to  render  it  negotiable.  Thus  a  note  read : 


Ameeican  Commercial  Law.  53 

"Wateebubt,  Ck)NiT.,  Aug.  1,  1893. 
One  year  after  date  I  promise  to  pay  to  the  order  of  Nor- 
man D.  Grannis,  thirty  five  hundred  dollars  at  the  Fourth 
National  Bank.     Value  received,  with  interest  at  the  rate  oi 
6%  per  annum  and  taxes.  W.  C.  Myebs." 

The  court  held  that  though  this  instrument  might 
be  the  expression  of  a  valid  contract  between  the 
parties,  it  was  not  a  negotiable  instrument  for  the 
reason  that  the  words  "and  taxes"  made  the  amount 
payable  uncertain. ^^ 

(2)      When  sum  held  not  uncertain. 

"The  sum  payable  is  a  sum  certain  within  the 
meaning  of  this  act,  although  it  is  to  be  paid: 

1.  With  interest;  or 

2.  By  stated  installments;  or 

3.  By  stated  installments,  with  a  provision  that 
upon  default  in  payment  of  any  installment  or  of  in- 
terest, the  whole  shall  become  due;  or 

4.  With  exchange,  whether  at  a  fixed  rate  or  at 
the  current  rate;  or 

5.  With  costs  of  collection,  or  an  attorney's  fee, 
in  case  payment  shall  not  be  made  at  maturity.** 

Instruments  often  provide  for  payment  in  fixed 
installments,  and  often  also  contain  a  provision  that 
on  the  failure  of  the  payment  of  any  installment  or 
of  interest,  then  the  entire  sum  shall  become  due 
and  payable ;  and  these  are  valid  provisions  and  do 
not  affect  the  negotiability  of  the  instrument. 

13.  Smith   V.    Myers,    207    Illinois   Reports,    126. 

14.  Negotiable  Instruments  Law,  Sec  2. 


64  Negotiable  Paper. 

Instruments  often  contain  provisions  as  to  pay- 
ment of  exchange,  sometimes  expressing  the  rate, 
sometimes  merely  stating  "at  current  rate,"  and  this 
does  not  make  the  amount  uncertain  within  the 
meaning  of  the  law. 

Where  a  provision  is  to  pay  an  attorney's  fee,  stat- 
ing or  not  stating  the  amount  thereof,  if  payment 
is  not  made  at  maturity,  this  does  not  render  the 
amount  uncertain  within  the  meaning  of  the  law. 
The  costs  of  collection  and  the  attorney's  fee  never 
become  chargeable  or  of  any  effect  if  the  instrument 
is  paid  at  maturity.  It  is  only  in  case  it  becomes 
necessary  after  maturity  to  incur  liability  for  costs 
or  an  attorney's  fees,  that  they  may  be  added. 

If  the  amount  of  the  attorney's  fee  is  not  stated, 
a  reasonable  amount  is  allowed  by  the  court. 

Aside  from  the  provisions  stated,  any  provision 
whatsoever  that  renders  the  sum  payable  uncertain 
in  amount  destroys  negotiability. 

Sec.  19.  PAYMENT  IN  MONEY.  Promise  op  order 
must  be  to  pay  a  sum  certain  "in  money." 

The  payment  promised  or  ordered  must  be  in 
money.  Promise  or  order  to  pay  in  notes  or  other 
evidences  of  indebtedness  or  in  securities  of  any 
sort,  or  in  goods,  or  in  money  and  goods,  or  in  money 
or  goods  at  the  option  of  the  maker  or  drawer  or 
acceptor,  prevents  negotiability. 


American  Commercial  Law.  55 


C.      Must    Be    Payable   on    Demand   or   at   a    Fixed    or 
Determinable  Future  Time. 

Sec.  20.  DEMAND  PAPER.  Instrument  may  be  pay- 
able  on   demand. 

It  is  a  common  practice  to  make  negotiable  paper 
payable  on  demand. 

It  is  payable  on  demand: 

"i.  Where  it  is  expressed  to  be  payable  on  de- 
mand or  at  sight,  or  on  presentation ; 

"2.  In  which  no  time  for  payment  is  expressed. 
Where  an  instrument  is  issued,  accepted,  or  in- 
dorsed when  overdue,  it  is,  as  regards  the  person 
so  issuing  accepting,  or  indorsing  it,  payable  on 
demand."  ^^ 

Sec.  21.  FIXED  OR  DETERMINABLE  TIME.  If 
not  payable  on  demand,  instrument  must  be  payable  at 
a  fixed  or  determinable  future  time. 

(1)  In  general. 

An  instrument  must  be  payable  either  on  demand 
or  at  a  time  certain  to  occur.  If  there  is  any  uncer- 
tainty whatever  about  the  arrival  of  the  time  that 
destroys  negotiability. 

(2)  What  constitutes  determinable  future  time. 

"An  instrument  is  payable  at  a  determinable  fu- 
ture time  within  the  meaning  of  this  act,  which  is 
expressed  to  be  payable: 

1.  At  a  fixed  period  after  date  or  sight;  or 

2.  On  or  before  a  fixed  or  determinable  future 
time  specified  therein;  or 

16.    Negotiable  Instnunents  Law,  Sec.  7. 


56  Negotiable  Papee. 

3.  On  or  at  a  fixed  period  after  the  occurrence 
of  a  specified  event,  which  is  certain  to  happen, 
though  the  time  of  happening  be  uncertain. 

An  instrument  payable  upon  a  contingency  is  not 
negotiable  and  the  happening  of  the  event  does  not 
cure  the  defect."  ^^ 

In  one  case  the  plaintiff  sued  on  an  instrument  to 
which  he  claimed  title,  as  indorsee,  which  was  to 
become  due  and  payable  when  Henry  D.  Kelley 
became  21  years  of  age.  The  plaintiff  proved  that 
said  Kelley  did  become  21  years  of  age  before  the 
suit  was  started.  It  became  material  in  the  case 
to  establish  whether  this  instrument  was  or  was  not 
a  negotiable  instrument.  The  court  in  deciding  that 
it  was  not  negotiable  said,  in  part, — 

"*  ♦  *  Was  the  instrument  in  question  a  [ne- 
gotiable] promissory  note?  To  constitute  a  promis- 
sory note,  the  money  must  be  certainly  payable,  not 
dependent  on  any  contingency,  either  as  to  the  event 
or  the  fund  out  of  which  payment  is  to  be  made  or 
the  parties  by  or  to  whom  payment  is  to  be  made. 
If  the  terms  of  an  instrument  leave  it  uncertain 
whether  the  money  will  ever  become  payable,  it  can- 
not be  considered  as  a  promissory  note.  Thus  a 
promise  in  writing  to  pay  a  sum  of  money  when  a 
particular  person  shall  be  married  is  not  a  promis- 
sory note,  because  it  is  not  certain  he  will  ever  be 
married.  So  of  a  promise  to  pay  when  a  particular 
ship  shall  return  from  sea,  for  it  is  not  certain  she 
will  ever  return.  But  if  the  event  on  which  the 
money  is  to  become  payable  must  inevitably  take 

16.    Ibid,  Sec.  4. 


American  Commercial  Law.  57 

place  it  is  a  matter  of  no  importance  how  long  the 
payment  may  be  suspended.     *     *     * 

"The  fact  that  the  payee  lived  till  he  was  21  years 
of  age  makes  no  difference.  It  was  not  a  promis- 
sory note  when  made  and  it  could  not  become  such 
by  matter  ex  post  facto."  ^"^ 

An  instrument  payable  at  or  after  one's  death  may 
be  negotiable,  for  death  is  certain  to  occur. 

D.     "Must  be  payable  to  order  or  to  bearer." 

Sec.  22.  NECESSITY  OF  WORDS  OF  NEGOTIA- 
BILITY. A  negotiable  instrument  must  contain  words 
of  negotiability.     These  stamp  its  character. 

The  intent  of  the  parties  as  to  the  negotiability  of 
the  instrument  is  indicated  by  their  use  of  "words  of 
negotiability."  These  words  must  be  present  in 
every  negotiable  instrument.  Of  course  they  do  not 
in  themselves  make  an  instrument  negotiable,  that 
is,  are  of  no  effect  where  other  elements  are  lack- 
ing. But  they,  too,  must  be  present.  It  contains 
words  of  negotiability  when  (i)  it  is  payable  to 
order;  (2)  when  it  is  payable  to  bearer.  In  the  two 
following  sections  we  consider  what  language  makes 
an  instrument  payable  to  order  and  what,  payable 
to  bearer. 

Sec.  23.  WHEN  INSTRUMENT  PAYABLE  TO 
ORDER.  "The  instrument  is  payable  to  order  where 
It  is  drawn  payable  to  the  order  of  a  specified  person  or 
to  him   or  his  order." 

"It  may  be  drawn  payable  to  the  order  of 
I.     A  payee  who  is  not  maker,  drawer,  or  drawee; 
or 

17.    Kelley  v.  Hemingway,  13  Illmois  Reports,  604. 


68  Negotiable  Papee. 

2.  The  drawer  or  maker;  or 

3.  The  drawee;  or 

4.  Two  or  more  payees,  jointly;  or 

5.  One  or  some  of  several  payees;  or 

5.     The  holder  of  an  office  for  the  time  being. 

Where  the  instrument  is  payable  to  order,  the 
payee  must  be  named  or  otherwise  indicated  therein 
with  reasonable  certainty."  *^ 

Instruments  to  order,  customarily  read  "Pay  to 
the  order  of  John  Brown"  or  "Pay  to  John  Brown, 
or  order." 

It  will  be  noticed  that  the  person  to  whose  order 
it  is  made  may  be  the  drawer  or  maker  himself.  In 
connection  with  this  provision,  one  should  recall  the 
provision  that  "Where  a  note  is  drawn  to  the  maker's 
own  order  it  is  not  complete  until  indorsed  by  him." 

Sec.  24.  WHEN  INSTRUMENT  PAYABLE  TO 
BEARER.     "The  Instrument  is  payable  to  bearer: 

1.  When  it  is  expressed  to  be  so  payable;  or 

2.  When  it  is  payable  to  a  person  named  therein 
or  bearer;  or 

3.  When  it  is  payable  to  the  order  of  a  fictitious 
or  non-existing  person,  and  such  fact  was  known  to 
the  person  making  it  so  payable;  or 

4.  When  the  name  of  the  payee  does  not  purport 
to  be  the  name  of  any  person ; 

5.  When  the  only  or  last  indorsement  is  an  in- 
dorsement in  blank."  ^^ 

18.  Uniform  Negotiable  Instruments  Law,  Sec  8. 

19.  Ibid,   Sec.   9. 


American  Commercial  Law.  59 

(1)  When  It  Is  expressed  to  be  so  payable. 

In  such  a  case  the  instrument  simply  reads  "Pay 
to  bearer." 

(2)  When  It  Is  payable  to  a  person  named  therein, 
or  bearer. 

In  such  a  case  the  instrument  reads  "pay  to  John 
Brown,  or  bearer."  In  that  event  it  can  be  trans- 
ferred by  mere  dehvery  without  the  indorsement 
of  John  Brown. 

(3)  When  it  is  payable  to  the  order  of  a  fictitious 
or  non-existing  person  and  such  fact  was  known  to 
the  person  mal<ing  it  so  payable. 

If  an  instrument  is  made  payable  to  a  fictitious 
person,  and  this  is  known  to  the  person  making  the 
instrument,  it  is  considered  as  payable  to  bearer, 
and  may  be  transferred  without  indorsement.  From 
the  fact  that  the  payee  is  fictitious,  the  knowledge 
of  that  fact  by  the  maker  will  be  rebuttably  pre- 
sumed. 

(4)  When  the  name  of  the  payee  does  not  purport 
to  be  the  name  of  any  person. 

Instruments  payable  to  "cash,"  "bills  payable,"  or 
any  impersonal  payee  are  negotiable  and  payable  to 
bearer. 

(5)  When  the  only  or  last  Indorsement  Is  an 
indorsement  In  blank. 

If  an  instrument,  whether  payable  to  bearer  or 
not,  is  indorsed  in  blank,  or  if  the  last  indorsement 


60  Negotiable  Paper. 

upon  it  is  in  blank,  it  may  then  pass  by  delivery 
without  indorsement.  That  is  to  say  it  is  payable 
to  bearer.  Thus  suppose  an  instrument  is  payable 
to  John  Brown,  or  order.  Its  negotiation  requires 
indorsement  by  John  Brown.  Let  us  say  he  indorses 
it  "Pay  to  William  Smith,  (sd)  John  Brown."  Then 
its  further  negotiation  requires  the  indorsement  of 
William  Smith.  Suppose  that  William  Smith  en- 
dorses it  in  blank,  that  is  to  say,  by  simply  writing 
"William  Smith."  Its  further  negotiation  may  be 
accomplished  by  mere  delivery  or,  if  the  parties 
choose,  by  indorsement. 


CHAPTER  4. 

EXPRESSION    IN    NEGOTIABLE    FORM     (2)     NON-ESSEN- 
TAIL  AND  NON-VITIATING   MATTER  :  OF  FORM  ;  20 
AND   RULES   OF   CONSTRUCTION. 

Sec.  25.  AUTHORIZING  SALE  OF  COLLATERAL 
SECURITIES.  A  provision  which  authorizes  the  sale 
of  collateral  securities  in  case  the  instrument  Is  not 
paid  at  maturity,  Is  valid  and  does  not  affect  negotia- 
bility. 

Securities  may  be  pledged  to  secure  a  negotiable 
instrument  and  a  provision  in  the  instrument  which 
refers  to  them  and  authorizes  them  to  be  sold  does 
not  prevent  negotiability.  It  aids  rather  than  clogs 
the  instrument,  and  facilitates  its  transfer.  The 
right  to  the  securities  goes  with  the  negotiation. 

In  the  same  way  a  reference  in  a  note  to  a  chattel 
mortgage  or  to  a  real  estate  mortgage  given  to  se- 
cure the  debt  which  the  note  evidences,  is  not  de- 
structive to  negotiability,  but  aids  it  rather. 

Sec.  26.  AUTHORIZING  CONFESSION  OF  JUDG- 
MENT. A  provision  which  authorizes  confession  of 
judgment  on  the  instrument  Is  valid  and  does  not 
affect  negotiability. 

Notes  frequently  contain  a  provision  whereby 
some  attorney  or  any  attorney  is  authorized  to  con- 

20.    Uniform  Negotiable  Instruments  Law,  Sees.  6-6. 

(61) 


B2  Negotiable  Paper. 

fess  judgment  on  the  note.  Such  a  note  is  called 
a  judgment  note.  Its  value  lies  in  the  fact  that  the 
note  may  be  converted  into  a  judgment  without  the 
formalities  necessary  or  the  time  required  to  take 
judgment  in  the  ordinary  case.  The  defendant  does 
not  have  to  be  served  or  notified,  and  judgment  can 
be  secured  the  same  day  that  suit  is  entered.  No 
evidence  is  required  save  of  the  signature  and  the 
amount  due,  for  the  attorney  whom  the  note  names 
is  empowered  to  confess  judgment. 

Any  holder  of  the  note  may  have  the  confession 
of  judgment  thereon.  This  form  is  not  in  use  in 
many  states. 

Sec.  27.  WAIVING  BENEFIT  OF  EXEMPTION  AND 
SIMILAR  LAWS.  A  provision  whereby  the  debtor 
waives  the  benefit  of  any  law  in  his  favor  does  not 
affect  negotiability  but  whether  the  waiver  Is  effective 
depends  on  the  law  of  the  state. 

A  waiver  of  laws  intended  for  a  debtor's  benefit, 
does  not  have  any  effect  upon  the  negotiability, 
but  the  waiver's  eflfect  depends  on  local  law.  Theo- 
retically it  would  seem  one  ought  not  to  be  allowed 
to  waive  a  law  which  is  to  protect  him  as  a  debtor, 
for  such  law  is  passed  as  much  for  the  good  of  the 
community,  as  for  him.  Yet  in  most  states  it  is  held 
he  may  waive  the  benefit  of  such  laws,  except  such 
as  are  for  the  benefit  also  of  his  family,  and  these 
he  cannot  waive. 

Sec.  28.  GIVING  HOLDER  OPTION  TO  REQUIRE 
MONEY  OR  SOMETHING  ELSE.  Giving  holder  option 
to  require  money  or  to  have  something  else  given  or 


American  Commercjial  Law.  63 

done  does   not   Impair  the  negotiability  of  an   Instru- 
ment. 

We  have  already  seen  that  an  instrument  to  be 
negotiable  must  be  payable  in  money,  and  (i)  that 
an  agreement  to  pay  money  and  do  something  else, 
and  (2)  an  agreement  to  pay  money  or  at  the  ma- 
ker's or  acceptor's  option,  do  something  else,  are  not 
negotiable.  But  if  an  instrument  provide  that  the 
holder  may  require  payment  of  money  or  that  some- 
thing else  be  done  or  given,  in  other  words,  requires 
the  obligator  to  pay  a  sum  certain  in  money  if  the 
holder  so  elects,  and  the  debtor  himself  have  no 
right  to  govern  that  election,  the  instrument  is  nego- 
tiable. 

The  following  note  was  given: 

"Boston,  April  1st,  1850. 
In  4  years  from  date  for  value  received  the  R,  &  B.  Rwy. 
Co.  promises  to  pay  in  Boston,  to  A,  or  order,  one  thousand 
dollars  with  interest  thereon,  at  the  rate  of  6%  per  annum, 
payable  semi-annually;  or  upon  the  surrender  of  this  note, 
at  any  time  until  within  six  months  of  its  maturity,  the 
maker  shall  issue  to  the  holder  thereof  10  shares  in  the 
capital  stock  in  said  company  in  exchange  therefor, 
(sd)     R.  &  B.  Rwy.  Co., 

Per  X,  Pres't. 
Y,  Treas'r." 

This  note  is  negotiable;  the  promise  to  pay  a  cer- 
tain sum  being  absolute,  though  the  holder  may 
choose  to  have  something  else  done  in  lieu  thereof. 

"The  instrument  upon  which  the  action  was 
brought  has  all  the  essential  qualities  of  a  negotiable 
promissory  note.  It  is  for  the  un-conditional  pay- 
ment of  a  certain  sum  of  money,  at  a  specified  time 


64  Negotiable  Paper. 

to  the  payee's  order.  It  is  not  an  agreement  in  the 
alternative  to  pay  in  money  or  railroad  stock.  It 
was  not  optional  with  the  makers  to  pay  in  money 
or  stock  and  thus  fulfil  their  promise  in  either  of 
two  specified  ways ;  in  such  a  case  the  promise  would 
have  been  in  the  alternative.''^^ 

Sec.  29.  SEAL.  Putting  a  note  under  seal  destroyed 
at  common  law  Its  negotiable  character;  but  by  the 
uniform  negotiable  instruments  act,  sealing  an  instru- 
ment does  not  destroy  its  negotiable  character. 

By  common  law  a  seal  destroyed  negotiability. 
This  the  law  has  now  altered.  If  an  instrument  has 
the  other  requirements  essential  to  negotiability  the 
seal  is  ineffective  to  change  its  character. 

Sec.  30.  OMISSION  OF  DATE.  The  omission  of  the 
date  of  the  instrument  does  not  impair  its  negotiability. 

The  date  is  a  material  part  of  the  instrument  but 
not  a  formal  requisite.  The  instrument  is  still 
negotiable  notwithstanding  the  lack  of  a  date.  In 
this  respect  the  negotiable  instrument  law  provides: 

"Where  an  instrument  expressed  to  be  payable  at 
a  fixed  period  after  date,  is  issued  undated,  or  where 
the  acceptance  of  an  instrument  payable  at  a  fixed 
period  after  sight  is  undated,  any  holder  may  insert 
therein  the  true  date  of  issue  or  acceptance,  and  the 
instrument  shall  be  payable  accordingly.  The  in- 
sertion of  a  wrong  date  does  not  void  the  instru- 
ment in  the  hands  of  a  subsequent  holder  in  due 

21.    Hodges  V.  Shuler,  22  New  York,  114. 


American  Commercial  Law.  65 

course,  but  as  to  him  the  date  so  inserted  is  to  be 
regarded  as  the  true  date."^^ 

Sec.  31.  ANTE-DATING  AND  POST-DATING.  Dat- 
Ing  instrument  before  or  after  Its  issue,  If  not  for 
fraudulent  purposes,  does  not  Invalidate  It. 

The  negotiable  instrument  law  provides: 
"The  instrument  is  not  invalid  for  the  reason 
only  that  it  is  ante-dated  or  post-dated,  provided 
this  is  not  done  for  an  illegal  or  fraudulent  purpose. 
The  person  to  whom  an  instrument  so  dated  is  de- 
livered acquires  title  thereto  as  of  the  date  of  de- 
livery." 23 

Sec.  32.  TECHNICAL  RULES  OF  CONSTRUCTION. 
Where  an  instrument  is  ambiguous  the  following  rules 
of  construction  are  applied. 24 

(i)  Where  the  sum  payable  is  expressed  in 
words  and  figures,  the  words  govern,  in  case  of  dis- 
crepancy. 

(2)  Interest  provided  for  runs  from  the  issue  of 
the  instrument  in  case  no  date  is  stated. 

(3)  Where  the  instrument  is  undated,  it  will  be 
considered  to  be  dated  as  of  the  date  of  its  issue. 

(4)  Writing  prevails  over  print  where  in  con- 
flict. 

22.  Uniform  Negotiable  Instrumenta  Act,  Sec.  18. 

23.  Ibid,  Sec.  12. 

24.  Ibid,  Sec.  17- 

2  B— 6 


66  Negotiablb  Paper. 

(5)  If  the  instrument  is  so  ambiguously  drawn 
that  it  is  doubtful  whether  it  is  a  bill  or  note,  the 
holder  may  treat  it  as  either. 

(6)  Where  one  signs  in  such  a  manner  that  his 
intention  is  doubtful,  he  may  be  treated  as  an  en- 
dorser. 

(7)  If  two  or  more  persons  sign  a  note  reading 
"I  promise  to  pay,"  both  are  jointly  and  severally 
liable  thereon. 


CHAPTER  5. 

EXECUTION  AND  DELIVERY :  PARTIES  BOUND. 

8ec.  33.  DELIVERY  ESSENTIAL;  WHEN  PRE- 
SUMED. The  Instrument  Is  Ineffectual  between  the 
parties  until  delivery  thereof,  which  consists  of  a 
parting  with  the  control  over  it,  with  an  Intention  to 
be  bound  thereon;  but  where  an  Instrument  complete 
and  regular  on  Its  face,  comes  into  the  hands  of  a  pur- 
chaser in  due  course,  delivery  will  be  presumed.SB 

A  negotiable  instrument  though  complete  and 
regular  in  form  cannot  take  effect  until  it  has  been 
unconditionally  delivered  with  the  purpose  of  giving 
effect  thereto.  If  it  has  passed  out  of  the  hands  of 
the  party  whose  name  is  upon  it,  a  delivery  by  him 
even  as  between  the  parties  will  be  presumed  until 
the  contrary  is  shown.  In  such  a  case  it  may  be 
shown  to  overcome  the  presumption  that  the  instru- 
ment was  not  parted  with  for  the  purpose  of  giving 
it  effect;  or  was  delivered  conditionally  or  for  a 
special  purpose  only. 

But  if  the  instrument,  complete  and  regular  on 
its  face,  has  come  into  the  hands  of  a  person  who 
acquired  it  before  maturity,  for  value,  and  without 
notice  of  its  lack  of  delivery,  the  delivery  will  be 
conclusively  presumed. 

Thus,  suppose  that  A  made  out  a  promissory  note 
payable  to  B  for  the  purpose  of  delivering  it  to  B 
in  a  bargain  he  expected  to  make  with  B.     The 

25.    Uniform  Negotiable  Inatruments  Act,  Seo.  li. 


68  Negotiable  Paper. 

bargain,  however,  failed  and  A  was  about  to  destroy 
the  note  when  B  snatched  it  from  his  hand.  The 
defense  of  lack  of  delivery  could  of  course  be  inter- 
posed as  against  B.  B,  however,  sells  the  note  to  C. 
If  the  note  lacks  any  element  of  negotiability,  the 
defense  could  also  be  made  against  C.  But  if  the 
note  was  in  negotiable  form,  and  C  was  a  purchaser 
before  its  maturity,  for  value,  and  without  notice, 
the  lack  of  delivery  could  not  be  set  up  against  him. 
If  the  note  had  been  in  such  form  when  secured 
by  B  that  a  forgery  would  have  been  necessary  to 
accomplish  its  further  transfer,  as  where  it  had  been 
made  to  A's  own  order,  but  not  indorsed  by  him, 
the  defense  could  have  been  made  even  as  against 
C. 

Sec  34.  EXECUTION  IN  BLANK.  AUTHORITY  TO 
FILL.  If  an  Instrument  Is  Issued,  wanting  in  any 
material  particular,  any  holder  has  a  prima  facie  author- 
ity to  fill  up  the  blanks.  But  blanks  must  be  filled  up  In 
accordance  with  authority.  One  acquiring  the  instru- 
ment after  its  completion,  and  as  a  purchaser  for  value 
without  notice  and  before  maturity,  can  enforce  It  as 
filled  up,  notwithstanding  the  authority  was  exceeded.20 

The  text  is  shown  in  the  following  illustration : 
B  has  in  his  hands  A's  note  payable  to  A's  order, 
and  by  A  indorsed  in  blank,  A  has  given  this  to  B 
for  the  purpose  of  borrowing  what  money  he  can  up 
to  $500.00.  B  in  C's  presence  fills  up  the  note  for 
$1,000  and  delivers  it  to  C  of  whom  he  receives  that 
amount   of  money   and  then   absconds.    A  is   not 

26.    Uniform  Negotiable  Instruments  Act,  Sec.  14. 


American  Commercial  Law.  69 

liable.  C  is  bound  to  know  B's  authority.  Had  B 
filled  in  the  amount  and  thus  completed  the  instru- 
ment without  C's  knowledge,  A  would  have  been 
bound  for  any  amount  (within  reason)  filled  in. 

35.  EXECUTION  BY  AGENT;  WHEN  AGENT  PER- 
SONALLY BOUND.  An  agent  can  bind  his  principal 
only  by  executing  In  the  principal's  name.  By  sign- 
ing his  own  name  and  iJescribing  himself  as  agent,  he 
binds  himself;  except  when  acting  In  capacity  of  pub- 
lic official. 

The  authority,  real  and  apparent,  of  an  agent  to 
bind  his  principal  on  negotiable  paper  is  governed 
by  the  rules  of  the  law  of  agency.  Assuming,  here, 
that  he  has  such  authority  we  may  inquire  into  the 
manner  in  which  it  shall  be  exercised. 

First,  let  it  be  noticed  that  even  though  one  lets  it 
be  known  he  is  an  agent  and  indeed  so  describes 
himself  in  the  instrument  itself,  he  may  still  be  per- 
sonally bound  upon  the  instrument ;  upon  the  broad 
general  principle,  that  even  though  an  agent  have 
authority  to  pledge  his  principal's  credit,  he  may 
if  he  choose,  pledge  his  own. 

The  most  approved  manner  in  which  an  agent 
should  sign  to  bind  his  principal  on  negotiable  pa- 
per, is  to  recite  in  the  body  of  the  instrument  the 
principal's  name  as  the  promisor  therein,  signing 
the  principal's  name,  by  himself  as  agent.  The  fol- 
lowing illustrations  will  indicate  whether  the  agent 
binds  his  principal  or  himself. 

Illustration : 

"I  promise  to  pay,  etc. 

Wm.  Smith,  Agent." 
or 


70  Negotiable  Paper. 

"Wm.  Smith,  Executor." 

or 
"Wm.  Smith,  President." 
binds  Wm.  Smith,  personally,  though  he  had  author- 
ity to  sign  for  the  principal  and  intended  to  bind  him 
or  it. 
Illustration : 

"John  Jones  promises  to  pay,  etc 
John  Jones, 

By  William  Smith,  Agent" 
or 
"I  promise  to  pay,  etc. 
John  Jones, 

By  William  Smith,  Agent." 
or 
"We  promise  to  pay,  etc. 
General  Manufacturing  Co., 

By  William  Smith,  President." 
binds  the  principal  and  not  the  agent,   (assuming 
there  was  real  or  apparent  authority.) 

One  should  be  very  careful  not  to  leave  out  the 
word  "By."  Otherwise  he  might  be  personally 
bound  with  the  other  party,  even  though  he  should 
add  "agent." 

To  go  into  other  possible  varieties  upon  which 
the  Courts  have  differed  would  only  tend  to  con- 
fusion. The  cautious  business  man  will  be  careful 
to  see  that  the  name  of  the  principal  is  in  the  body 
of  the  note  and  that  the  agent  subscribes  such  princi- 
pal's name  by  himself  as  agent. 

The  rule  varies  as  to  public  officials.  They  are 
not  personally  bound  in  making  negotiable  paper  in 
the  performance  of  their  duties  and  in  the  scope  of 
their  authority  though  they  sign  merely  in  this  man- 
ner,— "John  Jones,  Commissary  Agent." 


CHAPTER  6. 

CONSIDERATION    FOR    EXECUTION.''' 

Sec.  36.  NECESSITY  OF  CONSIDERATION.  Every 
negotiable  instrument  to  be  enforceable  between  the 
parties  must  be  supported  by  a  consideration.  But 
lack  of  consideration  cannot  be  availed  of  against  a 
holder  In  due  course. 

As  every  simple  contract  must  be  supported  by  a 
consideration,  it  necessarily  follows  that  negotiable 
instruments  must  as  between  the  parties  be  so  sup- 
ported. But  if  the  instrument  is  negotiated  before 
maturity,  and  for  value  to  a  holder  without  notice 
of  the  want  of  consideration,  the  defense  cannot  be 
made  against  him. 

Thus,  A,  expressing  his  purpose  to  make  B  a  gift 
gives  B  his  promissory  note,  for  which  B  gives  no 
return.  This  instrument  cannot  be  enforced  by 
B,  but  if  B  sells  it  to  C,  in  due  course,  C  can  enforce 
it. 

A  pre-existing  debt  may  constitute  consideration 
for  negotiable  paper. 

Sec.  37.  CONSIDERATION  PRESUMED.  In  th« 
absence  of  proof  to  the  contrary,  a  consideration  In 
negotiable  Instruments  will  be  presumed.  No  recital 
of  consideration  Is  necessary. 

It  is  a  peculiar  characteristic  of  negotiable  instru- 
ments that  a  consideration  will  be  presumed  until  the 
contrary  is  shown.     It  is  not  necessary  to  recite 

27.    Uniform  Negotiable  Instruments  Act,  Sees.  24-29, 


TO  Negotiable  Paper. 

the  consideration,  nor  to  recite  that  there  has  been 
a  consideration.  The  words  "value  received/'  or 
their  equivalent  are  not  necessary. 

Sec.  38.  ADEQUACY  OF  CONSIDERATION.  Whether 
consideration  Is  adequate  or  inadequate  will  not  In  the 
absence  of  fraud  be  Inquired  into,  except  in  cases 
where  the  consideration  was  money  loaned  and  the 
amount  promised  in  return  is  enougii  greater  to  render 
the  transaction  usurious. 

In  this,  as  in  other  forms  of  contract,  the  ade- 
quacy or  inadequacy  of  the  consideration  is  in  itself 
of  no  importance  and  will  not  be  inquired  into.  If 
there  is  an  allegation  of  fraud  and  other  evidence 
to  prove  it  besides  the  mere  inadequacy,  the  Court 
mav  in  a  proper  case  take  into  account  the  inade- 
quacy of  the  consideration. 

If  one  loans  money  and  gives  his  note  in  return 
for  an  amount  enough  larger  to  make  the  transac- 
tion usurious,  in  that  sense  the  inadequacy  of  the 
consideration  will  be  gone  into.  The  effect  of  taking 
usury  varies  in  the  different  states. 


CHAPTER  7. 

THE  FORMATION  OF  THE  ACCEPTOR'S  CONTRACT. 

Sec.  39.  DEFINITION  OF  ACCEPTANCE.  "The 
acceptance  of  a  bill  Is  the  signification  by  the  drawee 
of  his  assent  to  the  order  of  the  drawer.  The  accept- 
ance must  be  In  writing  and  signed  by  the  drawee. 
It  must  not  express  that  the  drawee  will  perform  his 
promise  by  any  other  means  than  the  payment  of 
money."  28 

We  have  heretofore  noticed  that  the  person  in  a 
bill  of  exchange  upon  whom  the  order  is  drawn  is 
called  the  drawee  until  he  accepts,  whereupon  he  be- 
comes the  "acceptor."  We  shall  see  hereafter  that 
in  many  cases  there  is  no  presentment  for  acceptance 
prior  to  presentment  for  payment.  In  the  present 
chapter  we  are  concerned  only  with  the  formation 
of  the  acceptor's  contract,  leaving  other  points  in 
reference  to  acceptance  to  discussion  elsewhere. 

Acceptance  consists  in  the  expression  of  the 
drawee's  assent  to  the  order  and  his  willingness  to 
be  bound  thereupon.  He  then  becomes  the  party 
primarily  liable  on  the  instrument,  the  drawer  being 
only  secondarily  liable,  that  is  to  say,  liable  after  the 
acceptor. 

28.    Uniform  Negotiable  Instruments  Act,  Sec.  132. 

[(73) 


74  Negotiable  Papee. 

8c.  40.    how  acceptance  must  or  may  be 

MADE.  29  If  the  holder  demand,  acceptance  must  be  on 
the  face  of  the  bill.  Otherwise  he  may  treat  the  bill 
as  dishonored.  But  a  bill  may  be  accepted  by  a  sepa- 
rate paper  In  which  case  It  will  be  binding  only  In 
favor  of  one  who  received  the  bill  for  value.  So  an 
absolute  promise  to  accept  a  bill  thereafter  to  be  drawn 
will  operate  as  an  acceptance  in  favor  of  any  one  who 
on  the  faith  thereof  received  the  bill  for  value. 

An  acceptance  must  be  in  writing.  If  the  holder 
demand,  the  acceptance  must  be  on  the  face  of  the 
bill,  otherwise  the  holder  can  treat  the  bill  as  dishon- 
ored, that  is,  unaccepted.  But,  otherwise  there  may 
be  an  acceptance  by  way  of  extrinsic  document,  be- 
fore or  after  the  bill  is  drawn.  An  absolute  promise 
to  accept  a  certain  described  bill,  or  an  extrinsic 
written  acceptance  of  a  bill  already  drawn  is  a  good 
acceptance  as  to  any  one  who  on  the  faith  thereof 
has  received  the  bill  for  value,  but  not  as  to  any  one 
else. 

Thus,  C  has  a  bill  drawn  by  A  on  B.  B  states 
orally  that  he  will  pay  it.  B  cannot  be  held  on  this 
oral  promise.  B  says  he  will  write  an  acceptance  of 
it  but  not  on  the  face  of  the  bill.  C  may  but  need  not 
receive  such  acceptance.  If  he  does  it  is  effective 
to  bind  B  in  favor  of  C  or  any  one  else  who  for 
value  receives  the  bill  on  the  faith  of  the  acceptance. 
So  also  of  B's  promise  to  accept  it  before  it  is  drawn. 

Sec.  41.  ACCEPTANCE  PRESUMED  FROM  RETEN- 
TION.  "Where  a  drawee  to  whom  a  bill  Is  delivered 
for  acceptance  destroys  the  same,  or  refuses  within 
twenty-four  hours  after  such  delivery,  or  within  such 

29.     Ibid,  Sees.  133-135. 


American  Commercial  Law.  75 

other  period  as  the  holder  may  allow,  to  return  the 
bill  accepted,  or  non-accepted  to  the  holder,  he  will 
be  deemed  to  have  accepted  the  same."30 

A  case*!  stating  the  law  in  this  regard  and  con- 
struing the  above  provision  of  the  Negotiable  In- 
struments Act,  reads  in  part  as  follows: 

"Upon  delivery  for  acceptance  the  drawee  is  not 
bound  to  act  at  once.  He  has  a  right  to  a  reason- 
able time,  usually  24  hours,  to  ascertain  the  state  of 
accounts  between  himself  and  the  drawer,  and  until 
expiration  of  that  time  the  holder  has  no  right  to 
demand  an  answer,  nor  without  categorical  answer, 
to  deem  the  bill,  either  accepted  or  dishonored;  not 
accepted,  because  of  the  right  of  drawee  to  consider 
before  he  binds  himself;  not  dishonored,  because 
both  drawer  and  drawee  have  the  right  that  their 
paper  be  not  discredited  during  such  period  of  inves- 
tigation. After  the  expiration  of  that  reasonable 
time  the  holder  has  a  right  to  know  whether  the 
drawee  assumes  liability  to  him  by  accepting,  and  if 
not,  he  has  a  right  to  return  of  the  document,  so  that 
he  may  protest  or  otherwise  proceed  to  reserve  his 
rights  against  the  drawer.  The  consensus  of 
authority  is,  however,  that  the  duty  rests  on  the 
holder  to  demand,  either  acceptance  or  return  of  the 
bill,  and  that  mere  inaction  on  the  part  of  the 
drawee  has  no  effect.  After  expiration  of  this  time 
for  investigation,  the  drawee  may,  by  retention  of 

30.  Negotiable  Instrumenta  Law,  Sec.  137.  Illinois  has 
omitted  this  section. 

31.  Westberg  v.  Chicago  Lumber  &  Coal  Co.,  117  Wis- 
consin Reports,  589.  The  Wisconsin  Act  adds  "Mere  reten- 
tion of  the  bill  is  not  acceptance." 


T6  Negotiable  Paper. 

the  bill,  accompanied  by  other  circumstances,  become 
bound  as  acceptor;  not  however  by  mere  retention. 
There  seem  to  be  two  phases  of  conduct  recognized 
by  the  authorities  as  charging  the  drawee:  one 
purely  contractual,  as  where  the  retention  is  accom- 
panied by  such  custom,  promise,  or  notification  as 
to  warrant  the  holder  to  the  knowledge  of  the 
drawee,  in  understanding  that  the  retention  de- 
clares acceptance;  the  other  where  the  conduct  of 
the  drawee,  is  substantially  tortious,  and  amounts 
to  a  conversion  of  the  bill.  This  is  the  phase  of  con- 
duct which  our  negotiable  instruments  statute  *  *  ♦ 
has  undertaken  to  define  and  limit  as  refusal  (not 
mere  neglect)  to  return  the  bill,  or  destruction  of  it; 
reiterating  the  common  law  rule  that  mere  retention 
of  the  bill  is  not  acceptance." 

This  is  an  excellent  statement  of  the  common  law 
rule  and  the  reasons  therefor.  Some  cases,  how- 
ever, have  held  that  mere  retention  is  sufficient  to 
constitute  acceptance. 

Sec.  42.  ACCEPTANCE  OF  INCOMPLETE  BILL. 
Drawee's  acceptance  may  be  made  while  the  bill  is  still 
incomplete,  it  being  completed  thereafter.32 

Sec.  43.  ACCEPTANCE  AFTER  NON-ACCEPTANCE 
OR  AFTER  IVIATURITY.  A  drawee  may  accept  a  bill 
after  maturity,  or  after  dishonor  by  non-acceptance  or 
non-payment.  If  a  bill  payable  after  sight  is  dishonored 
and  afterward  accepted  the  holder  is  entitled  to  have 
the  bill  accepted  as  of  the  date  of  the  first  present- 
ment.33 

32.  Uniform  Negotiable  Instruments  Act,  Sec.  138. 

33.  Ibid. 


American  Commercial  Law.  77 

Sec.  44.  KINDS  OF  ACCEPTANCE.  Acceptances  are 
either  general  or  qualified.  The  holder  may  demand  a 
general  and   refuse  a  qualified  acceptance.34 

(1)  What  constitutes  general  acceptance.  Any 
acceptance  which  does  not  vary  the  terms  of  the  bill 
is  a   general  acceptance. 

To  this  acceptance  the  holder  is  entitled.  He  may 
treat  the  bill  as  dishonored  if  such  acceptance  is  re- 
fused. But  if  he  choose  he  may  take  a  qualified  ac- 
ceptance. An  acceptance  is  still  general  though  it 
name  a  particular  place  for  payment,  unless  it  ex- 
pressly states  that  the  bill  is  to  be  paid  there  and  not 
elsewhere. 

(2)  What  constitutes  qualified  acceptance.  An 
acceptance  is  qualified  which  varies  any  term  of  thi 
bill. 

"An  acceptance  is  qualified,  which  is: 

1.  Conditional,  that  is  which  makes  pa3nment  by 
the  acceptor  dependent  on  the  fulfillment  of  a  con- 
dition therein  stated; 

2.  Partial,  that  is  to  say,  an  acceptance  to  pay 
part  only  of  the  amount  for  which  the  bill  is  drawn ; 

3.  Local,  that  is  to  say,  an  acceptance  to  pay  only 
at  a  particular  place ; 

4.  Qualified  as  to  time ; 

5.  The  acceptance  of  some  one  or  more  of  the 
drawees  but  not  of  all."^'' 

34.  Ibid,  Sec.  139. 

35.  Ibid,  See.  141. 


T9  Negotiable  Paper. 

By  custom  an  acceptance  is  not  deemed  to  bfc 
qualified  which  recites  a  place  of  payment  unless  it 
further  recites  that  it  is  payable  only  at  such  a  place. 

Sec.  45.  EFFECT  OF  QUALIFIED  ACCEPTANCE. 
It  binds  the  acceptor  according  to  the  tenor  thereof, 
it  discharges  the  drawer  and  previous  Indorsers  unless 
they  consent  thereto.  They  do  assent  thereto  when 
after  notice  of  such  acceptance,  they  neglect  within  a 
reasonable  time  to  dissent  to  the  holder. 

Sec.  46.  ACCEPTANCE  (CERTIFICATION)  OF 
CHECK.  Certification  of  check  by  the  drawee  bank 
is  an  acceptance  thereof;  and  charges  the  bank  accord- 
ing to  the  tenor  of  the  check;  but  certification  at  the 
request  of  the  holder  discharges  drawer  and  indorsers. 

Checks  are  as  far  as  possible  governed  by  rules 
which  govern  other  bills  of  exchange.  Acceptance 
of  a  check  is  sometimes  termed  "certification."  The 
bank  thereupon  becomes  primarily  liable  to  pay 
the  check.  If  at  the  holder's  request,  the  check  is 
certified,  that  discharges  previous  indorsers  and  the 
drawer,  because  such  holder  might  have  received 
payment.  A  certification  at  his  request  amounts 
practically  to  a  deposit  by  him.  If  at  the  drawer's 
or  indorser's  request  such  drawer  and  indorser 
remain  secondarily  liable. 


CHAPTER  8. 

THE   FORMATION   OF   THE    CONTRACT   OF    PARTIES  FOR 
ACCOMMODATION  OR  FOR  HONOR. 

Sec.  47.  ACCOMMODATION  PARTY  DEFINED. 
One  who  becomes  a  party  to  a  negotiable  Instrument  in 
order  to  lend  his  credit  to  another  is  called  an  accom- 
modation maker,  drawer,  indorser,  or  acceptor  as  the 
case  may  be. 

Just  as  one  may  become  surety  for  another  in  any 
form  of  indebtedness,  so  one  may  lend  his  credit  to 
another  by  signing  a  negotiable  instrument.  Such 
party  is  bound  notwithstanding  he  receives  no  bene- 
fit from  his  act,  and  although  any  one  who  takes  the 
instrument  for  value  knows  that  he  takes  no  bene- 
fit. Thus  a  party  may  for  another's  accommodation 
sign  as  maker  of  a  note,  drawer  or  acceptor  of  a  bill 
or  indorser  of  a  bill,  note,  or  check.  In  such  a  case 
there  are  always  two  parties,  at  least,  besides  the 
accommodating  party,  namely  the  accommodated 
party  and  the  one  who  extends  credit  to  him,  other- 
wise no  rights  can  arise.  Thus  I  make  a  note  to  B. 
for  B's  benefit  and  without  receiving  any  considera- 
tion therefor.  But  unless  B  uses  the  note  and  sells 
it  for  value  to  C,  I  could  not  be  held,  for,  should  B 
sue  me  upon  the  note,  I  could  defend  that  there  was 
no  consideration,  that  is  to  say,  that  B  neither  gave 
me  nor  any  one  else  anything  in  return  for  my  prom- 
ise, and  this  would  be  true  even  though  I  recited 
that  value  had  been  received.    But  if  B  should  sell 

my 


80  Negotiable  Papee. 

the  note  to  C  in  order  to  use  my  credit  I  should  be 
liable  to  C  and  could  not  say  that  I  received  nothing 
so  far  as  C  was  concerned ,  notwithstanding  C 
knew  that  to  be  the  fact,  provided,  however,  it  was 
indeed  the  fact  that  I  had  signed  for  accommodation 
and  not  otherwise. 

In  the  same  way  one  may  become  joint  maker 
with  the  accommodated  party  upon  a  note,  or  draw 
or  accept  a  bill  or  indorse  any  commercial  paper  in 
order  that  his  name  may  give  the  paper  a  value 
which  it  would  not  otherwise  have. 

One  who  signs  as  an  accommodation  party  and 
who  has  to  pay  the  instrument  by  reason  thereof  has 
his  right  of  reimbursement  against  the  person  who 
should  have  paid  it. 

Sec.  48.  ACCEPTANCE  FOR  HONOR.  Acceptance 
for  honor  consists  in  tlie  acceptance  of  a  protested,  not 
overdue  bill  by  one  who  is  not  the  drawee  thereof  nor 
other  party  liable  thereon,  for  the  honor  of  some  other 
party  thereto. 

Acceptance  for  honor  consists  likewise  in  a  lend- 
ing of  credit.  One  who  accepts  for  honor  differs 
from  one  who  accepts  for  another's  accommodation 
in  this  respect.  An  accommodation  acceptor  is  the 
drawee  named  in  the  bill.  He  accepts  for  some 
other  person's  benefit  but  the  bill  was  drawn  on  him 
that  he  might  so  accept  it.  But  an  acceptor  for  honor 
is  one  who  is  no  party  to  the  bill,  but  becomes  such 
by  intervention,  and  who  volunteers  to  assume  the 
place  of  the  drawee  of  such  bill,  and  to  do  what  such 
drawee  should  have  done  or  was  expected  to  do. 

An  acceptance  may  be  for  the  honor  of  any  one 


American  Commercial  Law.  81 

on  the  bill,  but  it  is  presumed,  if  not  otherwise 
stated,  to  be  for  the  honor  of  the  drawer. 

The  acceptance  for  honor  may  be  for  part  only 
of  the  sum  for  which  the  bill  is  drawn.  It  must 
state  that  it  is  for  honor  and  be  signed  by  the  ac- 
ceptor  for  honor. 

The  acceptor  for  honor  becomes  liable  to  all  par- 
ties who  are  subsequent  to  the  party  for  whose  hon- 
or the  acceptance  is  made. 

The  bill  so  accepted  must  be  presented  to  the 
drawee  when  due  for  payment  and  protested  for  non- 
payment before  the  acceptor  for  honor  can  be  made 
to  pay  it.  This  is  true  although  there  may  be  small 
hope  that  the  drawee  will  pay  it,  as  he  has  already 
refused  to  accept  it  when  it  was  presented  to  him 
for  that  purpose. 

The  acceptor  for  honor  will  be  discharged  unless 
the  bill  is  presented  to  him  for  payment  within  one 
day  after  its  maturity,  or  if  he  resides  in  some 
other  place  unless  it  is  put  in  the  mails  within 
twenty-four  hours  after  such  date  of  maturity. 

In  connection  with  this  Section  read  Sections 
161-170  in  Appendix  A. 

Acceptance  for  honor  is  also  called  acceptance 
supra  protest. 

Sec.  49.  PAYMENT  FOR  HONOR.  Payment  for 
honor  consists  In  payment  by  some  other  party  than 
the  drawee  or  the  acceptor  for  the  honor  of  some 
party  liable  on  the  bill  accepted  or  for  whose  account 
such   bill  was  drawn. 

Payment  for  honor  is  for  the  same  purpose  as  ac- 
ceptance for  honor,  and  consists  in  the  intervention 
of  some  one  to  take  the  place  of  the  drawee  or  ac- 
ceptor named  in  the  bill  where  such  bill  has  been 
2  B— e 


82  NliGOTlABLE  PAPBB. 

presented  to  the  drawee  or  acceptor  for  payment, 
and  protest  for  non-payment  has  been  made.  A 
bill  might  be  protested  for  non-payment  where  it  had 
been  accepted  or  where  it  had  not  been  accepted, 
for  we  shall  find  that  it  is  not  always  necessary  to 
present  a  bill  for  acceptance,  but  sometimes  it  is  suffi- 
cient to  simply  present  it  for  payment  when  due. 

A  payment  for  honor  must  be  stated  to  be  such 
and  must  be  attested  by  a  "notarial  act  of  honor 
which  may  be  appended  to  the  protest  or  form  part 
of  it."  This  notarial  act  must  set  forth  the  declara- 
tion of  the  payer  that  he  pays  the  bill  for  honor  and 
for  whose  honor  he  pays  it. 

One  who  pays  for  honor  and  who  properly  saves 
his  rights  succeeds  to  the  rights  of  the  holder  against 
the  person  for  whose  honor  he  pays  and  parties 
liable  to  the  latter. 

In  connection  with  this  Section  read  Sections  171- 
177  in  Appendix  A, 


PART  m. 

OPERATION   OF  THE  CONTRACT. 

CHAPTER  9. 

NEGOTIATION.^' 

A.     In  general  of  negotiation  and  Indorsement. 

See.  50.  MEANING  OF  NEGOTIATION.  By  nego- 
tiation is  meant  the  transfer  of  negotiable  paper  by 
the  payee  thereof  or  his  transferee  with  the  intention 
and  eiTect  of  constituting  the  transferee  the  holder  of 
the   legal   title  thereof. 

To  negotiate  commercial  paper  is  to  transfer  it 
to  another  for  the  purpose  of  investing  the  owner- 
ship in  him.  generally  or  for  some  special  purpose. 

Sec.  51.  KINDS  OF  NEGOTIATION.  Negotiation  Is 
by  delivery  and  by  Indorsement. 

Some  instniments,  we  have  noticed,  are  nego- 
tiable by  delivery.  That  is  when  they  are  payable 
to  bearer.  And  when  they  are  payable  to  bearer  has 
also  been  stated.  In  such  case  they  may  also  be 
indorsed,  but  this  enlarges  the  liability  of  the  trans- 
feror. But  when  payable  to  order  they  are  trans- 
ferred by   indorsement,   and   the   indorsement    is 

36.    Uniform  Negotiable  Instruments  Law,  Sees.  30-60. 

;(83) 


84  Negotiable  Paper. 

necessary  to  negotiation.  A  holder  of  paper  which 
must  be  negotiated  by  indorsement  does  not  become 
a  holder  in  due  course  until  indorsement  has  actually 
been  made,  no  matter  when  he  acquired  the  paper. 

Sec.  52.     HOW   INDORSEMENT  ACCOMPLISHED. 

(1)  Must  be  In  writing.  An  Indorsement  must  be 
In  writing  on  the  Instrument  itself  or  on  a  paper 
attaclied  thereto. 

An  indorsement  must  be  written  on  the  instru- 
ment or  on  a  paper  attached  thereto.  This  at- 
tached paper  is  called  an  allonge.  The  indorsement 
may  be  on  the  face  or  the  back  of  the  paper,  though 
in  practice  it  is  almost  without  exception  placed 
upon  the  back. 

If  a  transfer  is  made  by  separate  writing,  it  is 
an  assignment  for  negotiable  instruments  may  be 
assigned,  as  well  as  indorsed.  The  title,  in  that  case, 
is  that  of  an  assignee,  that  is,  it  is  subject  to  defenses. 

(2)  Words  sufficient  or  necessary.  The  signature  of 
the   Indorser   Is  sufficient. 

The  contract  of  the  indorser  is  implied  from  his 
mere  signature.  If  the  indorsement  is  special,  as 
noted  below,  there  is  also  the  name  of  indorsee,  and 
restrictive,  qualified  and  conditional  indorsements 
also  require  additional  words.  But  indorsement  may 
be  by  signature  alone,  and  there  must  be  such  signa- 
ture. But  any  word  or  mark  intended  as  a  signature 
is  sufficient. 

The  contract  of  the  indorser,  though  not  ex- 
pressed, except  by  his  signature,  is  well  understood 
in  law.    He  contracts  to  pay  if  the  party  primarily 


American  Commercial  Law.  85 

liable  does  not  pay,  provided  the  necessary  steps  are 
taken  to  charge  him,  as  we  shall  see  later.  He  also 
contracts  that  he  has  good  title  and  that  prior  par- 
ties have  competency  to  contract,  etc.  All  this  is 
contained  in  the  mere  signature  on  the  back  of  the 
note.  The  indorser's  contract  is  noted  more  at 
length,  later. 

The  courts  have  differed  whether  "I  hereby  as- 
sign" written  on  the  instrument  above  the  signature 
is  a  good  indorsement  or  a  mere  assignment. 

The  most  usual  and  the  correct  practice  is  not  to 
attempt  to  set  out  the  contract  in  anyway,  but  simply 
use  the  signature. 

Words  of  negotiability  are  not  necessary  in  the 
indorsement.  An  indorsement  "Pay  to  John  Brown" 
istead  of  "pay  to  the  order  of  John  Brown,"  will  not 
restrict  further  negotiation  provided  the  instrument 
itself  is  in  its  body  in  negotiable  form. 

Sec.  53.  ATTEMPTED  PARTIAL  INDORSEMENT. 
Indorsement  must  be  of  the  entire  instrument,  but  If 
any  part  of  the  sum  has  been  paid,  there  may  be  a 
good  Indorsement  of  the  residue. 

An  indorsement  of  part  of  an  instrument  is  not 
good  as  an  indorsement  because  if  indorsements 
could  be  divided  up  it  would  subject  the  party  liable 
to  great  inconvenience  and  expense. 

Sec.  54.  EFFECT  OF  INDORSEMENT  TO  TRANS- 
FER INCIDENTS.  An  indorsement  of  a  negotiable 
instrument  is  effective  to  transfer  the  Incidental  rights 
therein  to  aid  or  secure  the  enforcement  of  the  debt. 

The  debt  expressed  in  the  negotiable  instrument 
Is  the  main  thing.    Provisions  and  securities  to  aid 


86  Negotiablb  Paper. 

in  its  enforcement  and  which  do  not  destroy  nego- 
tiability, pass  with  an  indorsement  of  the  note. 

Thus  one  who  receives  a  note  which  has  been  se- 
cured by  collateral,  is  entitled  to  the  collateral  for 
the  purposes  for  which  it  was  given ;  and  mortgages 
should  be  assigned  with  the  debt  which  they  secure. 

So  authority  to  confess  judgment,  waivers  of 
rights,  agreements  to  pay  costs,  attorney's  fees,  etc., 
all  pass  to  the  holder  of  the  note,  because  they  are 
incidental  to  the  debt. 

See.   55.     PRESUMPTIONS  AS  TO   INDORSEMENT. 

(1)  Presumption  as  to  time.  Presumed  unless 
dated  after  maturity  to  have  been  before  instrument 
was  overdue. 

Indorsements  after  maturity  though  good  to  trans- 
fer title,  subject  one  to  defenses,  if  any,  as  we  shall 
note  later;  hence  the  importance  of  this  presump- 
tion.    Indorsements  are  not  usually  dated. 

(2)  Presumption  as  to  place.  Presumed  unless  con- 
trary appears,  to  have  been  at  place  where  Instrument 
Is  dated. 

The  place  of  dating  is  important  to  determine 
what  law  will  govern  when  there  is  a  conflict. 

Sec.  56.  MISCELLANEOUS  RULES  CONCERNING 
INDORSEMENT. 

(1)     Indorsement  to  "Cashier." 

An  indorsement  to  the  fiscal  officer  of  a  corpo- 
ration or  bank,  so  describing  him,  is  deemed  prima 


American  CJommeecial  Law.  87 

facie  an  indorsement  to  the  bank  or  corporation. 
And  may  be  negotiated  further  either  by  the  cash- 
ier's or  the  institution's  indorsement.  This  applies 
to  paper  payable  to  any  fiscal  officer. 

(2)  Payee  or  Inaorsee  misdescribed  or  name  mis* 
spelled. 

If  a  payee  or  indorsee's  name  is  misspelled  or 
he  is  otherwise  misdescribed  he  may  indorse  as  des- 
cribed, adding  his  correct  name,  if  he  choose,  or  is 
so  required. 

(3)  Striking  out  Indorsement. 

Holder  may  strike  out  any  indorsement  not  neces- 
sary to  his  title.  This  discharges  the  indorser 
whose  name  is  so  stricken  and  all  indorsements  sub- 
sequent thereto. 

(4)  Negotiation  by  prior  party. 

If  an  instrument  is  negotiated  back  to  a  prior 
party  he  may  re-issue  and  further  negotiate  the  in- 
strument, but  cannot  enforce  payment  against  any 
party  to  whom  he  was  personally  liable. 

B.     Kinds  of  Indorsement. 

See.  57.  SPECIAL  INDORSEMENT.  A  special 
Indorsement  Is  one  which  specifies  a  particular  Indorsee. 

An  indorsement  to  a  certain  person  naming  him 
in  the  indorsement  is  called  a  special  indorsement. 
An    instrument    so    indorsed     cannot    be    further 


88  Negottablb  Paper. 

negfotiated  except  by  indorsement  until  it  is  subse- 
quently indorsed  in  blank.  If  the  special  indorsee 
indorses  in  blank,  the  paper  will  then  pass  by  deliv- 
ery. (But  if  the  instrument  is  payable  to  bearer, 
it  may  pass  by  delivery  notwithstanding  it  has  been 
specially  indorsed  and  there  is  no  blank  indorse- 
ment.) 

Sec.  58.  BLANK  INDORSEMENT.  A  blank  Indorse- 
ment Is  one  which  does  not  specify  any  particular 
indorsee. 

A  blank  indorsement  is  accomplished  by  merely 
writing  the  name  of  the  indorser  on  the  back  of  the 
instrument.  It  may  then  pass  by  mere  delivery, 
but  the  holder  may  convert  it  into  a  special  indorse- 
ment by  writing  above  it  "Pay  to  John  Brown." 

A  special  indorsement  and  an  indorsement  i^n 
blank  carry  with  them  the  same  liability.  The  con- 
tract in  each  instance  is  the  same,  A  blank  indorse- 
ment is  not  so  safe  as  a  special  indorsement,  be- 
cause being  transferable  by  delivery,  a  thief  or  finder 
thereof  could  give  a  good  title  to  an  innocent  pur- 
chaser for  value  before  maturity. 

The  three  following  sections  relate  to  indorse- 
ments which  modify  the  indorser's  contract.  Either 
a  special  indorsement  or  one  in  blank  may  be  quali- 
fied, restrictive,  or  conditional. 

Sec.  59.  QUALIFIED  INDORSEIVIENT.  A  special 
or  blank  indorsement  may  ibe  accompanied  with  words 
qualifying,  that  is  to  say,  limiting  the  Indorser's  con- 
tract. 

The  indorser's  contract  has  already  been  noted 
and  will  hereafter  be  particularly  considered.     The 


American  Commercial  Law.  89 

indorser  may,  however,  if  the  indorsee  will  consent, 
qualify  his  contract.  This  is  usually  done  by  adding 
the  words  "without  recourse,"  but  even  in  such  case 
the  indorser  warrants  certain  things,  as  noted  later. 
Either  a  blank  or  special  indorsement  may  be  so 
limited.  The  qualification  has  no  effect  on  the  nego- 
tiable character  of  the  instrument  and  it  may  be  fur- 
ther negotiated  with  the  same  freedom  as  though  not 
so  indorsed. 

Sec.  60.  RESTRICTIVE  INDORSEMENT.  A  special 
or  blank  Indoriement  may  Be  accompanied  with  words 
restricting   further    Indorsement. 

A  restrictive  indorsement  is  an  indorsement 
made  not  for  the  purpose  of  transferring  the  title 
to  the  instrument  generally,  but  a  special  purpose, 
that  is  to  say,  for  purposes  of  collection,  or  in 
trust,  etc.  It  stops  further  negotiation  except  as 
authorized  by  the  terms  of  the  indorsement  or  for 
the  purpose  of  carrying  out  the  restrictive  indorse- 
ment. 

Sec.  61.  CONDITIONAL  INDORSEMENT.  A  special 
or  blank  Indorsement  may  be  accompanied  with  words 
making  its  effect  conditional. 

One  may  indorse  to  another  on  some  condition. 
The  party  compelled  to  pay  the  instrument  may  dis- 
regard the  condition,  whether  it  has  been  per- 
formed or  not,  the  condition  being  between  indorser 
and  indorsee.  But  the  conditional  indorsee  or  his 
transferee,  will  hold  the  instrument  or  the  proceeds 
thereof  subject  to  the  condition. 


CHAPTER  lo. 

THE  TITLE  OF  A   TRANSFEREE  OF   NEGOTIABLE   PAPER. 

Sec.  62.  IN  GENERAL.  The  title  of  a  transferee  of 
negotiable  paper  involves  tlie  two-fold  inquiry,  (1) 
whetFier  tlie  party  liable  on  sucli  paper  had  any  defense, 
and  if  so  what  defense,  against  any  prior  party,  and 
(2)  whether  the  present  transferee  is  a  holder  in  due 
course  of  trade. 

It  has  heretofore  been  indicated  that  a  transferee 
of  negotiable  paper  may  take  a  better  title  than  had 
his  transferor;  that  the  transfer  of  negotiable  paper 
by  way  of  negotiation  defeats  the  right  of  the  maker 
of  the  paper  to  make  certain  defenses,  but  does  not 
defeat  him  of  the  right  to  make  others;  and  in  the 
present  chapter  we  shall  inquire  in  detail  concerning 
such  transferee's  title.  We  shall  assume,  first, 
that  the  paper  in  question  is  negotiable ;  second,  that 
some  prior  party  has  a  defective  title,  that  is  to  say, 
that  some  defense  could  be  made  against  him  by  the 
party  or  parties  liable  on  such  instrument;  and 
third,  that  the  present  transferee  acquired  the  paper 
by  way  of  sufficient  negotiation  (indorsement  or  de- 
livery) and  not  by  way  of  assignment.  We  shall 
assume  the  defect  of  title  in  a  prior  party, 
that  is  to  say  the  existence  of  some  defense  to  which 
he  would  be  subject,  because  otherwise  our  inquiry 
would  lose  its  pertinence.  If  the  party  or  parties  ap- 
parently liable  on  an  instrument  have  no  defense  to 
make  against  any  prior  party,  the  present  holder 

(90) 


American  Commercial  Law.  91 

has  the  admittedly  good  and  sufficient  title  of  such 
prior  holders,  no  matter  whether  he  acquired  title 
in  due  course  or  not.  In  other  words,  though  a 
transferee  in  order  to  shut  off  certain  defenses  that 
could  have  been  made  against  prior  parties,  must 
be,  as  we  shall  find,  a  holder  in  due  course,  that  is 
to  say,  a  purchaser,  in  good  faith,  for  value,  and  be- 
fore maturity,  yet  if  there  are  no  defenses  to  be 
made  against  any  one,  these  things  become  unessen- 
tial. Thus  the  holder  may  in  such  case  acquire  the 
paper  after  maturity,  or  for  no  value,  that  is  to  say, 
as  a  gift,  but  no  point  can  be  made  of  this  unless 
there  was  a  defense  that  could  have  been  made 
against  the  transferor. 

Making  these  assumptions  let  us  first  inquire,  un- 
der what  circumstances  a  transferee  can  claim  to 
be  entitled  to  all  the  peculiar  advantages  of  a  pur- 
chaser of  negotiable  paper,  in  other  words,  who  is  a 
holder  in  due  course,  and  secondly  to  what  defenses 
he  is  not,  to  what  defenses  he  is,  subject 

A.    Transferee  must  be  a  holder  In  due  course  to  claim 
full   benefit  of  law  merchant. 

Sec.  63.  HOLDER  IN  DUE  COURSE,  WHO  IS.  In 
order  to  claim  the  peculiar  advantages  of  the  law 
merchant,  the  holder  must  be  a  holder  In  due  course; 
that  is,  he  must  have  acquired  (1)  paper  complete  and 
regular  on  Its  face,  (2)  for  value,  (3)  In  good  faith, ^m-' 
and   (4)   before  the  paper  was  overdue.  "^ 

a 

It  is  essential  that  all  of  these  circumstances  co- 
exist to  make  one  a  holder  in  due  course.  They 
are  discussed  in  order. 


92  Negotiable  Papbe. 

8«c.  64.  complete  and  regular  instru- 
MENT. To  constitute  one  a  holder  in  due  course  the 
instrument  must  have  been  complete  and  regularly 
issued. 

The  instrument  must  have  been  complete  and  reg- 
ular. This  requirement  is  sometimes  stated  that  it 
must  have  been  acquired  "in  the  regular  course  of 
business."  The  idea  is  that  there  must  not  be  such 
incompletion  or  irregularity  about  the  instrument 
when  transferred  as  practically  to  give  notice  of 
something  wrong. 

Sec.  65.  TRANSFEREE  MUST  GIVE  VALUE.  One 
is  not  a  holder  in  due  course  unless  he  has  given  value 
in  consideration  of  the  transfer. 

A  negotiable  instrument  may  be  the  subject  of  a 
gift  to  the  transferee,  but  in  that  event  the  defenses, 
if  any,  that  could  have  been  made  against  the  trans- 
feror can  be  made  against  the  transferee.  But  if 
the  instrument  has  been  acquired  for  value,  and  the 
other  elements  necessary  to  make  one  a  holder  in  due 
course  exist,  certain  of  such  defenses  cannot  be  made 
against  the  present  holder. 

A  holder  has  given  value  when  he  has  actually 
parted  with  anything  of  value  in  the  eyes  of  the  law, 
that  is,  anything  which  he  has  a  legal  right  to  re- 
tain. We  cannot  say  that  it  is  synonymous  with 
"consideration"  because  in  the  law  of  contracts  an 
executory  promise  to  part  with  something  of  value  as 
well  as  the  actual  parting  with  value  constitute  a 
good  consideration.  But  one  has  not  given  value, 
as  an  indorsee  of  negotiable  paper  until  he  has  actu- 
ally given  what  was  agreed  upon.     The  negotiable 


American  Commbbc5ial  Law.  93 

instruments  law  provides  in  such  respect :  "When  the 
transferee  receives  notice  of  any  infirmity  in  the  in- 
strument or  defect  in  the  title  of  the  person  nego- 
tiating the  same  before  he  has  paid  the  full  amount 
agreed  to  paid  therefor,  he  will  be  deemed  a  holder 
in  due  course  only  to  the  extent  of  the  amount  there- 
tofore paid  by  him." 

Thus,  A  secures  from  B  on  fraudulent  represen- 
tations a  note  expressed  to  be  payable  in  the  sum 
of  $500  and  interest.  A  indorses  this  note  to  C 
for  $500,  $250  of  which  C  pays  to  A  and  agrees  to 
pay  the  other  $250  in  ten  days.  Before  he  has  paid 
this  second  installment,  he  receives  notice  of  the 
fraud.  If  he  pays  the  other  $250  to  A  it  will  be  at 
his  peril  for  B  may  set  up  the  defense  against  C,  ex- 
cept to  defeat  the  $250  first  paid. 

Value  need  not  be  adequate.  One  is  a  purchaser 
for  value  if  he  give  anything  of  value  agreed  by  him 
to  be  given,  though  it  be  a  sum  of  money  much  less 
than  the  face  value  of  the  instrument,  and  the  giv- 
ing of  this  will  perfect  his  title  to  the  instrument 
and  give  him  a  right  to  recover  the  face  value  there- 
of. 

Sec.  66.  TRANSFEREE  MUST  TAKE  IN  GOOD 
FAITH.  One  is  not  a  holder  in  due  course  unless  he 
has  received  the  Instrument  In  good  faith. 

It  is  somestimes  said  that  a  transferee  is  not  a 
holder  in  due  course  unless  he  takes  "without  no- 
tice," but  it  describes  the  situation  better  to  say  he 
must  be  a  taker  in  "good  faith,"  or  not  in  bad  faith. 
It  is  now  well  settled,  and  the  Negotiable  Instru- 
ments Act  expressly  so  provides,  that  one  receiving 


94  Negotiable  Paper. 

commercial  paper,  giving  value  therefor,  and  receiv- 
ing it  before  maturity  is  a  holder  in  due  course  un- 
less he  have  actual  and  not  merely  constructive  no- 
tice of  the  defect  of  title  or  purchased  under  such 
circumstances  that  his  act  amounted  to  an  exercise 
of  bad  faith.  There  was  in  some  of  the  earlier  de- 
cisions a  test  stated  that  he  must  not  purchase  under 
such  circumstances  that  would  put  a  reasonably  pru- 
dent man  on  inquiry,  but  this  test  has  been  aban- 
doned. One  is  not  put  to  active  diligence  to  discover 
the  defect,  even  though  the  circumstances  are  a  lit- 
tle suspicious  provided  he  have  no  actual  knowledge 
and  buy  in  good  faith. 

If  a  note  is  sold  for  much  less  than  its  face  value, 
that  may  be  a  circumstance  going,  with  other  cir- 
cumstances, to  show  bad  faith,  but  otherwise  it  is 
unimportant.  That  is,  the  mere  fact  that  commercial 
paper  is  purchased  for  less  than  its  face  value,  can- 
not deprive  a  holder  of  his  rights  as  a  holder  in  due 
course.  Yet  such  facts  as  these,  that  the  in- 
strument was  procurable  at  a  large  discount,  though 
the  maker  was  known  to  be  solvent,  or  the  paper 
was  amply  secured,  or  was  purchased  from  a  total 
stranger,  might  all  be  matters  of  evidence  going  to 
prove  bad  faith. 

Sec.  67.  TRANSFEREE  MUST  TAKE  BEFORE 
INSTRUMENT  IS  OVERDUE.  An  overdue  Instru- 
ment retains  its  negotiability,  and  may  still  be  trans- 
ferred as  before  maturity,  yet  a  transferee  thereof  will 
take  it  subject  to  such  defenses  as  existed  against  It 
In  the  hands  of  his  transferor.  To  be  a  holder  In  due 
course  he  must  have  acquired  It  before  it  was  overdue* 

While  maturity  does  not  take  from  an  instru- 
ment its  negotiable  character,  still  one  is  not  a  holder 


American  Commeeoial  Law.  95 

in  due  course  unless  he  acquired  it  before  it  was 
overdue.  That  the  instrument  is  overdue,  puts  him 
upon  inquiry  as  to  whether  something  is  wrong  that 
it  has  not  been  paid. 

Demand  paper  is  considered  as  overdue  after  it 
has  remained  out  more  than  a  reasonable  time. 

Sec.  68.  TRANSFEREE  OF  HOLDER  IN  DUE 
COURSE.  One  who  purchases  from  a  holder  fn  due 
course,  takes  the  title  of  that  holder,  even  though  he 
has  notice  of  a  defense  available  against  a  holder  prior 
to  such  holder  in  due  course,  and  though  he  acquires 
the  paper  after  maturity. 

Where  defenses  that  might  have  existed  against 
a  holder  become  no  longer  available  to  defeat  suit 
on  the  instrument  because  such  instrument  has  been 
transferred,  the  defect  in  title  never  again  re-attaches 
though  one  purchases  under  such  circumstances  that 
had  his  transferor  had  a  defective  title,  his  also 
would  have  been  defective. 

Thus,  A,  through  a  fraud  in  the  consideration,  se- 
cured a  negotiable  promissory  note  from  M,  Before 
maturity  A  sold  the  note  to  B  who  paid  value  and 
who  had  no  knowledge  of  the  fraud,  and  purchased 
in  good  faith.  Concede,  therefore,  that  B  acquired 
a  good  title,  so  that,  if  he  had  sued,  the  defense  of 
the  fraud  could  not  have  been  made  against  him. 
B,  however,  indorsed  to  C  who  at  the  time  of  his 
purchase  knew  of  the  defense  that  could  have  been 
made  against  A.  C  gives  no  value  and  acquires  the 
instrument  after  maturity.  But  this  is  immaterial; 
he  acquires  B's  title,  which  was  good.  Had  B's  title 
been  defective,  C  would  have  had  to  purchase  for 
value,  in  good  faith,  and  before  the  note  was  over- 


•6  Negotiable  Paper. 

due.  This  is  reasonable.  The  paper  in  B's  hands 
must  be  paid.  There  is  no  reason  therefore  why  its 
further  negotiation  should  be  restricted.  If  M  must 
pay  it  to  B,  he  might  as  well  pay  it  to  any  one  else 
to  whom  B  indorses  it. 

B.  The  defenses  which  cannot  be  made  against  a 
holder  In  due  course,  as  above  defined.  Personal 
defenses. 

Sec.  69.  PAYMENT  BEFORE  MATURITY.  If  one 
pays  the  sum  or  any  part  thereof  owing,  but  not  due, 
on  paper  which  he  fails  to  take  up  or  upon  which  he 
falls  to  see  that  the  proper  Indorsement  Is  made,  and 
such  paper  Is  acquired  by  a  holder  In  due  course  such 
defense  Is  not  good  as  against  him. 

One  who  purchases  a  negotiable  instrument  for 
value,  before  it  is  overdue,  without  notice  that  it 
has  been  paid  in  whole  or  part,  may  enforce  it 
against  the  maker  or  drawer  notwithstanding  such 
payment.  The  defense  is  not  good  against  him.  It 
is  the  duty  of  one  paying  paper  before  due  to  take 
it  up,  or  to  see  that  the  payment  made  is  indorsed 
upon  it. 

Sec.  70.  SET  OFF.  One  cannot  set  off  claims  against 
a  holder  In  due  course  which  he  could  have  asserted 
against  his  transferor. 

The  law  customarily  allows  a  person  when  sued 
to  set  off  against  the  plaintiff  counter  demands  which 
he  may  have,  and  which  may  go  to  reduce  the  plain- 
tiff's judgment  or  defeat  it.  But  this  right  cannot 
be  availed  of  in  an  action  on  a  note  by  a  holder  in 
due  course. 


AMERICAN  Commercial  Law.  9T 

Sec.  71.  WANT  OR  FAILURE  OF  CONSIDERATION. 
If  the  consideration  for  which  an  instrument  was 
given,  fails,  or  if  there  was  no  consideration,  the  defense 
thereof  cannot  be  made  against  a  holder  In  due  course. 

The  lack  of  consideration  is  a  good  defense  be- 
tween the  original  parties.  So  a  total  failure  of  con- 
sideration will  go  to  defeat  the  claim  and  a  partial 
failure  will  go  to  reduce  it.  But  such  defenses  are 
cut  off  by  a  transfer  to  a  holder  in  due  course.  The 
reasoning  here  is  similar  to  that  which  applies  in  sec- 
tions 69  and  70. 

Sec.  72.  FRAUD  IN  THE  CONSIDERATION  OR 
INDUCEMENT.  The  defense  that  the  execution  of  an 
instrument  was  secured  by  a  fraudulent  representation 
of  fact  cannot  be  made  against  a  holder  In  due  course. 

This  defense  is  unavailing  against  a  holder  in  due 
course.  See  illustration  in  section  one.  This  sort 
of  fraud  does  not  prevent  the  holder  from  knowing 
that  he  has  executed  the  very  instrument  which  is 
sued  upon,  but  concerns,  rather,  the  inducement  or 
consideration  for  signing  that  instrument.  Thus 
one  by  fraudulent  representations  induces  me  to  buy 
a  worthless  patent  right  for  which  I  give  him  my 
note  for  $100.  In  this  case  the  fraud  goes  to  the 
consideration  or  inducement,  and  not  to  the  nature 
of  my  act.  In  connection  with  this  section,  read 
section  81. 

Sec.  73.  THEFT  AND  WANT  OF  DELIVERY  OF  AN 
INSTRUMENT  PAYABLE  TO  BEARER.  If  an  Instru- 
ment is  in  such  form  that  It  may  pass  by  delivery,  a 

2  B— T 


•8  Negotiable  Papee. 

thief  or  one  to  whom  no  delfvery  was  made  may  pass 
good  title  thereto  to  an  innocent  purchaser  for  value 
before    maturity. 

When  an  instrument  is  payable  to  bearer  has  here- 
tofore been  indicated.  It  may  then  pass  from  hand  I 
to  hand  without  indorsement.  There  is  no  means, 
therefore,  by  which  one  who  purchases  it,  may  dis- 
cover the  fact  of  its  non-delivery  or  theft,  as  in  the 
case  of  an  instrument  which  cannot  be  negotiated 
without  indorsement.  Accordingly  if  such  an  in- 
strument is  stolen  the  thief  may  give  a  good  title  to 
an  innocent  purchaser  for  value  before  maturity. 
So,  where  one  is  not  actually  a  thief,  yet  the  instru- 
ment was  never  meant  to  be  delivered,  the  want  of 
delivery  cannot  be  set  up  against  the  innocent  pur- 
chaser. 

Sec.  74.  LACK  OF  AUTHORITY  TO  COMPLETE 
INSTRUMENT  WHERE  HOLDER  DOES  NOT  KNOW 
OF  ITS  DELIVERY  IN  INCOMPLETE  FORM.  Where  a 
signed  instrument  is  delivered  In  incomplete  form  with 
authority  to  fill  up  the  blanks  above  the  signature  and 
the  holder  in  due  course  Is  not  aware  of  Its  incomplete 
character  when  delivered,  the  fact  that  the  Instrument 
was  completed  in  excess  of  the  actual  authority  affords 
no  defense  as  against  such  holder. 

One  putting  forth  an  instrument  which  he  has 
signed  with  a  blank  therein  to  be  thereafter  filled, 
cannot  complain  against  a  holder  in  due  course  that 
the  blank  was  filled  in  excess  of  the  authority.  This 
is  most  reasonable  for  if  one  entrusts  another  with 
an  instrument  which  he  has  signed  and  in  which  he 
has  left  blanks,  he  who  made  abuse  of  authority 


Ameeican  Commebcial  Law.  90 

possible,  ought  to  suffer  rather  than  an  innocent 
party  who  relied  on  an  instrument  apparently- 
good.  If  such  holder  knows  that  the  instrument 
was  incomplete,  he  is,  we  have  found,  put  upon 
notice  as  to  the  actual  authority. 

Sec.  75.  ILLEGALITY  OF  CONSIDERATION  EX- 
CEPT WHERE  THE  LAW  MAKES  THE  INSTRUMENT 
FOR  SUCH  ILLEGALITY  ABSOLUTELY  VOID.  The 
Illegality  of  consideration  constituting  a  defense  to  the 
Instrument  as  between  the  parties  cannot  be  set  up 
against  a  holder  In  due  course,  except  In  certain  cases 
where  the  law  declares  the  instrument  absolutely  void 
because  of  such  Illegality. 

Some  forms  of  illegality,  as  we  will  hereafter  note, 
make  an  instrument  absolutely  void,  no  matter  into 
whose  hands  it  comes.  But  otherwise  the  illegality 
of  a  transaction  out  of  which  the  instrument  arose 
cannot  be  made  a  defense  against  a  holder  in  due 
course. 

If  the  note  is  usurious  and  the  usury  is  not  ap- 
parent on  the  face  of  the  instrument,  usually  the 
defense  of  usury  cannot  be  made  against  the  holder 
in  due  course. 

The  effect  of  charging  a  greater  rate  of  interest 
than  that  which  is  stated  by  law  as  being  the  highest 
rate  which  may  be  contracted  for,  differs  in  different 
jurisdictions.  In  some  it  operates,  when  made  a 
defense,  as  a  forfeiture  of  all  interest,  or  some  like 
penalty,  but  it  renders  the  contract  void  only  in  a 
few  states.  The  principal  can  usually  be  recovered. 
A  purchaser  of  a  usurious  note  upon  which  the 
usury  appeared  would  take  subject  to  such  defense. 
If  it  did  not  appear,  he  usually  would    not    b<» 


100  Negotiable  Papek. 

affected  by  it,  unless  the  law  declared  that  usury 
makes  an  instrument  entirely  void. 

Sec.  76.  LACK  OF  AUTHORITY  OF  CORPORATE 
OFFICER.  Against  the  Innocent  purchaser  for  value 
the  lack  of  authority  of  the  corporate  officer  to  execute 
the  particular  instrument  purporting  to  bind  the  cor- 
poration, cannot  be  set  up,  if  such  officer  had  apparent 
authority  to  bind  the  corporation  upon  negotiable  paper 
for  legitimate  purposes. 

If  an  officer  of  a  corporation  has  actual  power  to 
bind  the  corporation  upon  negotiable  paper,  or  has 
apparent  power  so  to  bind  it,  by  signing,  indorsing, 
or  accepting  paper  in  its  behalf,  for  its  legitimate 
corporate  purposes,  then  an  innocent  purchaser  for 
value  of  an  instrument  signed,  indorsed,  or  accepted 
apparently  in  behalf  of  such  corporation,  has  a  right 
to  assume  that  the  particular  instrument  held  by  him 
expresses  a  real  obligation  of  the  corporation  and 
is  not  subject  to  the  defense  of  lack  of  authority. 
But  if  there  was  no  real  or  apparent  authority  on 
the  part  of  such  officer  to  bind  the  corporation  on 
negotiable  paper,  then  an  innocent  purchaser  for 
value  could  not  hope  to  hold  the  corporation. 

One  Modica,  as  Vice-President  of  the  American 
Building  Loan  &  Investment  Society,  accepted  a 
draft  in  the  name  of  that  corporation,  drawn  upon 
it  by  one  Montgomery.  The  acceptance  of  the  draft 
was  evidently  for  the  purpose  of  enabling  Mont- 
gomery to  raise  funds  for  his  own  purposes,  and  the 
acceptance  was  clearly  beyond  the  real  authority 
of  Modica,  as  Montgomery  of  course  knew.  It  ap- 
peared however  that  Modica  was  the  managing  offi- 
cer of  the  corporation  and  that  similar  drafts,  drawn 
by  Montgomery  had   been    accepted   and   paid   by 


American  Commercial  Law.         101 

the  corporation.  The  purchaser  of  this  draft  knew 
of  these  previous  dealings  and  relying  thereon,  gave 
value  for  the  draft.  The  court  in  deciding  that 
the  actual  lack  of  authority  existing  in  this  particular 
instance  could  not  be  set  up  against  the  holder  in 
due  course,  said: 

"We  are  of  opinion  that,  under  the  law  of  its  cre- 
ation, the  American  Building  Loan  &  Investment 
Society  had  power  to  execute  negotiable  paper.  The 
rule  is  well  established  that  corporations  authorized 
to  do  a  particular  business,  unless  especially  denied 
the  power,  have  implied  authority  to  contract  debts 
in  the  legitimate  transactions  of  the  business  author- 
ized ;  and  the  right  to  contract  debts,  it  is  the  equally 
well  settled  American  rule,  carries  with  it  the  power 
to  give  negotiable  notes  or  bills  in  payment  or  secur- 
ity for  the  debts,  unless  that  power  is  expressly 
denied  (Citing  authorities.)     *     *     * 

"The  power  of  the  society  to  execute  notes  or  bills 
for  the  various  purposes  suggested  being  conceded 
and  there  being  no  ground  for  questioning  the  au- 
thority of  Modica  as  Vice  President  to  sign  the  name 
of  the  society  to  such  obligations,  executed  in  the 
regular  course  of  business,  the  case  comes  within  the 
rule  that,  when  a  corporation  has  power  "under  any 
circumstances,"  as  some  of  the  cases  say,  and  cer- 
tainly when  it  has  power  under  ordinary  circum- 
stances, or  in  the  usual  course  of  its  business  to  exe- 
cute negotiable  obligations,  the  bona  fide  purchaser 
of  a  particular  obligation  has  a  right  to  presume  that 
it  was  executed  under  circumstances  which  gave  the 
requisite  authority."  ^"^ 

37.    Grommes   et   al.    v.    Sullivan,    81    Federal    Reporter, 
418. 


102  Nbgohablb  Papese. 

Sec.  77.  LACK  OF  AUTHORITY  OF  PARTNER.  If 
a  partnership  Is  trading  In  cliaracter,  or  If  not  being 
H  trading  concern,  it  adopts  the  practice  of  issuing 
commercial  paper,  a  holder  in  due  course  relying  on  its 
character  or  its  custom,  can  hold  the  firm  on  paper 
signed  In  the  partnership  name  by  a  partner,  though 
he  exceeded  his  authority. 

About  the  same  rule  applies  in  this  case,  as  has 
been  applied  in  the  case  of  corporations.  The  part- 
nership is  bound  by  the  act  of  the  partner  in  issu- 
ing negotiable  paper  in  its  name,  though  he  exceeded 
his  actual  authority,  and  though  the  party  to  whom 
the  paper  was  issued  could  not  because  of  his  knowl- 
edge of  the  lack  of  authority  recover  thereupon,  if 
the  instrument  comes  to  the  hands  of  a  holder  in  due 
course ;  provided  it  is  a  buying  and  selling  company, 
in  which  each  partner  has  apparent  power  to  bind 
the  partnership  for  partnership  purposes,  or  though 
not  being  a  buying  and  selling  partnership  it  has 
adopted  a  practice  of  issuing  negotiable  paper,  upon 
which  the  present  holder  relies.  The  present  holder 
in  due  course  can  assume  that  the  paper  in  question 
was  issued  in  the  scope  of  the  firm  business. 

The  following  partnerships  have  been  held  "non- 
trading:"  partnerships  of  attorneys,  physicians, 
farmers,  hotel  keepers,  laundrymen,  livery  stable 
keepers,  printers  and  publishers,  miners ;  or  any  part- 
nership whose  main  business  is  not  to  buy  and  sell. 


AMEBIOAN  COMMERCIAIi  LaW.  103 

C.    The  defenses  which  can  be  set  up  against  a  holder 
in  due  course,  as  above  defined.     Real  Defenses. 

Sec.  78.  INFANCY.  A  minor  can  plead  his  non-age 
against  a  holder  in  due  course. 

The  defense  of  minority  is  good  against  all  the 
world.  A  minor's  express  contract  is  voidable  by 
him.  He  is  liable  on  his  implied  contract  for  neces- 
saries, but  not  upon  any  express  contract  even  for 
them,  unless  he  chooses  not  to  make  his  minority  a 
defense.  And  he  may  set  up  his  defense  against  a 
holder  in  due  course. 

See.  79.  FORGERY.  A  title  cannot  be  acquired 
against  one  through  forgery  of  his  name;  assuming 
there  are  no  peculiar  circumstances  estopping  him  to 
set  up  the  forgery. 

That  one's  name  has  been  forged  to  a  document 
gives  no  rights  against  him ;  assuming  that  there  are 
no  particular  circumstances  in  the  case  which  would 
make  it  inequitable  for  him  to  set  up  the  forgery, 
as  where  he  in  some  measure  really  encouraged  the 
act,  or  thereafter  ratified  it  or  did  not  deny  his  sig- 
nature when  it  was  possible  for  him  so  to  do.  See 
further,  the  next  section. 

Sec.  80.  MATERIAL  ALTERATION.  That  the 
instrument  has  been  materially  altered  Is  a  defense 
that  can  beset  up  against  a  holder  in  due  course;  unless 
the  alteration  was  made  possible  by  the  careless  manner 
in  which  the  Instrument  was  drawn.  But  a  holder  of 
an  altered  instrument  may  recover  on  It  according  to 
Its  original  tenor. 

If  a  material  alteration  is  made  with  guilty  intent, 
it  amounts  to  a  forgery,  and  the  same  rules  apply 
as  in  the  section  above.    If  not  made  with  gfuilty  in- 


104  Kbgotiable  Paper. 

tent  yet  still  purposely  it  is  nevertfieless  an 
alteration  and  the  maker  cannot  be  made  liable 
upon  the  instrument  as  changed. 

The  alteration  must  be  material  in  order  to  give 
the  promissor  any  defense.  The  statute  declares 
that  "Any  alteration  which  changes:     i.    The  date; 

2.  The  sum  payable,  either  for  principal,  or  interest ; 

3.  The  time  or  place  of  pa3TTient;  4.  The  number 
of  the  relations  of  the  parties :  5.  The  medium  or 
currency  in  which  payment  is  to  be  made;  or  which 
adds  a  place  of  payment  where  no  place  of  payment 
is  specified,  or  any  other  change  or  addition  which 
alters  the  effect  of  the  instrument  in  any  respect,  is 
a  material  alteration."  ^s 

If  by  reason  of  the  careless  drawing  of  the  instru- 
ment the  alteration  was  made  easily  possible,  the 
party  who  is  guilty  of  such  negligence  is  estopped 
to  set  up  the  alteration  against  a  holder  in  due  course. 

Suit  was  brought  upon  a  promissory  note  pur- 
porting to  be  made  by  defendants  and  reading  as 
follows :  ^^ 

"$1300.  Kewanee,  Illinois,  Oct.  4,  1897. 

One  year  after  date  I  promise  to  pay  to  the  order  of 
ourselves  thirteen  hundred  dollars  at  Kewanee,  111.  Value 
received,  with  interest  at  the  rate  of  seven  per  cent  per 
annum. 

(sd.)     L.    SrLVEEMAiq-, 

H.  Clay  Meebitt.'* 
Indorsed  on  back: 

"L.  Silverman. 
H.  Clay  Merritt." 
Boyden  &  Son,  paid  $1300  for  the  note,  acquired 
it  before  maturity  and  had  no  notice  of  any  altera- 

S8.    Uniform  Negotiable  Instruments  Act,  Sec.  125. 
M.    Merritt  r.  Boyden,  191  Illinois  Reports,  138. 


Ambeican  Commercial  Law.         105 

tion.  The  defense  was  based  on  two  theories:  (i) 
That  the  note  as  originally  delivered  contained  the 
figures  "$ioo"  in  the  margin,  and  the  words  "one 
hundred  dollars"  in  the  body  of  the  note,  and  that 
the  figures  "$ioo"  were  altered  to  read  "$1300,"  and 
the  word  "one"  before  "hundred"  was  erased,  and 
the  word  "thirteen"  inserted  in  its  stead ;  or 

(2)  That  the  word  "one"  was  not  in  the  body 
of  the  note,  but  that  there  was  a  blank  space  in  which 
the  word  "thirteen"  had  been  inserted. 

The  court  in  the  course  of  its  opinion  said :  "First, 
If  the  note  was  altered  by  (the  first  method)  then 
the  alteration  amounted  to  a  forgery  and  appellant 
is  not  liable  on  the  note,  even  though  appellees  were 
bona  fide  purchasers  thereof  for  value  without  notice 
or  knowledge  of  the  change.  If  the  amount  named 
in  the  note  is  raised  by  erasing  what  is  written,  such 
alteration  is  a  material  one,  and  the  note  is  thereby 
vitiated  so  as  to  become  void.  *  *  *  Where  a 
note  is  complete  at  the  time  when  it  is  signed  by  the 
maker,  its  subsequent  alteration  by  raising  the 
amount  thereof  through  obliteration  of  the  same  by 
the  use  of  any  chemical  process,  or  other  ingenious 
device,  without  the  knowledge  or  consent  of  the 
maker,  will  discharge  him  from  liability  upon  the 
note.  *  *  *  (The  court  found  this  theory  un- 
supported by  the  evidence.) 

"The  second  theory  of  the  defense  *  *  *  was 
that,  when  he  signed  and  endorsed  the  note,  there 
was  a  blank  space  before  the  word  "hundred"  and 
that  this  blank  space  was  subsequently  filled  by  in- 
serting the  word  "thirteen"  therein  without  the 
knowledge  or  consent  of  the  appellant.  *  *  * 
When  the  maker  of  the  note  has,  by  careless  execu- 


106  Nbgotiablb  Papbe. 

tion  of  the  instrument  left  room  for  an  alteration  to 
be  made  by  insertion  without  defacing  the  instrument 
or  exciting  the  suspicion  of  a  careful  man,  and  the 
instrument  by  reason  of  the  opportunity  thus  af- 
forded is  subsequently  filled  up  with  a  larger  amount 
than  that  which  it  bore  at  the  time  it  was  signed, 
the  maker  will  be  liable  upon  it  as  altered  to  any 
bona  fide  holder  without  notice."  (This  left  the 
contention  that  the  marginal  figures  had  been  al- 
tered to  be  disposed  of.  For  even  though  the  mak- 
ers of  the  note  were  negligent  as  to  the  body  of  the 
note,  the  marginal  figures  must  have  been  erased 
and  changed.  As  to  that  the  Court  said:)  "The 
marginal  figures  have  been  held  to  be  not  part  of 
the  instrument,  but  to  be  intended  merely  as  a  con- 
venient index,  and  as  an  aid  to  remove  ambiguity  or 
doubt  in  the  instrument  itself.  The  alteration  or 
erasure  of  the  marginal  figures  is  an  immaterial  alter- 
ation and  will  not  affect  the  rights  of  the  holder  of 
the  instrument." 

For  these  reasons  the  Court  gave  a  decision  in 
favor  of  the  holder  in  due  course. 

The  present  law  provides  that  where  an  instru- 
ment is  altered  and  is  come  into  the  hands  of  a 
holder  in  due  course,  though  the  alteration  is  a  de- 
fense against  him,  he  may  yet  recover  on  the  instru- 
ment according  to  its  original  tenor. 

Sec.  81.  FRAUD  GOING  TO  THE  EXECUTION. 
The  fraud  whereby  one  Is  Induced  to  execute,  accept 
or  Indorse  a  negotiable  instrument  under  the  impres- 
sion that  he  is  performing  some  other  act  with  an 
entirely  different  legal  effect,  gives  rise  to  a  defense 
good  against  everyone,  unless  one  is  because  of  his 
negligence  or  otherwise  estopped  to  set  it  up. 


American  Commeecial  Law.         107 

If  one  is  fraudulently  prevailed  upon  to  attach 
his  signature  to  a  negotiable  instrument,  with  the 
understanding  that  he  is  really  signing  some  alto- 
gether different  paper,  he  can  set  up  his  defense 
against  even  a  holder  in  due  course  provided  he  was 
not  negligent.  It  being  the  duty  of  every  one  to 
read  what  he  signs,  a  failure  to  read  would  ordinarily 
constitute  such  negligence  that  the  party  would  be 
estopped  to  set  up  his  defense  against  the  holder 
in  due  course.  But  there  are  rare  cases  in  which 
this  would  not  be  true.  So  if  by  any  trick  or  de- 
vice another  paper  than  the  one  read  is  substituted, 
a  defense  could  be  made  as  against  even  a  holder  in 
due  course. 

The  fraud  here  discussed  differs  from  that  dis- 
cussed above  in  section  72  in  that  the  fraud  there 
goes  to  the  consideration  or  inducement  and  not  to 
execution.  The  party  in  the  other  case  signs  just 
what  he  intended  to  sign.  In  such  case  a  true  bona 
fide  holder  has  a  good  title.  Here  he  has  none  if 
there  was  no  negligence. 

Sec.  82.  ILLEGALITY  WHICH  BY  STATUTE 
MAKES  INSTRUMENT  VOID.  By  statute  In  many 
Jurisdictions  it  is  declared  that  if  an  instrument  is 
founded  upon  certain  illegal  considerations,  as  for 
Instance,  a  gambling  consideration,  it  shall  be  utterly 
void.  In  such  cases  the  instrument  is  of  no  effect  even 
In  the  hands  of  an  innocent  purchaser  for  value. 

If  the  statute  declares  the  instrument  void,  it  be- 
comes so  to  all  purposes  and  can  give  no  rights  to 
any  one.  The  chief  case  in  which  an  instrument  is 
declared  void  as  to  everyone  is  the  case  of  an  in- 
strument executed  as  a  part  of  a  gambling  transac- 
tion. 


CHAPTER  11. 

THE   CONTRACT  OF  THE   PARTIES.*' 

Sec.  83.  OF  MAKER  OF  NOTE.  The  maker's  con- 
tract Is  to  pay  the  note,  according  to  Its  tenor,  to  the 
payee,  or  his  transferee.  He  cannot  deny  the  payee's 
existence  or  his  then  capacity  to  indorse.  His  liability 
Is  primary. 

The  maker's  liability  is  to  pay  the  instrument  ac- 
cording to  its  tenor.  Of  course,  if  he  has  defenses 
he  may  set  them  up  where  that  is  allowable  accord- 
ing to  the  principles  hereinbefore  discussed.  He 
engages  to  pay  primarily.  By  this  we  mean  that  no 
one  else  is  to  be  resorted  to. before  the  maker's  lia- 
bility will  accrue. 

He  engages  to  pay  the  amount  of  the  note.  It 
is  no  defense  that  the  holder  did  not  pay  the  face 
value. 

Sec.  84.  OF  DRAWER  OF  BILL.  The  drawer's  con- 
tract is  that  If  the  biii  be  not  accepted  or  paid,  accord- 
ing to  its  tenor,  to  the  payee  therein,  or  his  transferee, 
he,  the  drawer,  will  pay  it,  provided  the  necessary  steps 
be  tai<en  to  charge  him.  He  cannot  deny  the  payee's 
existence  or  his  then  capacity  to  indorse.  His  liability 
Is  secondary.  He  may  by  apt  words  negative  his 
liability. 

A  bill  is  drawn  as  an  order  on  someone  else.  If 
that  other  on  whom  it  is  drawn  does  not  accept,  he 

iO.    Uniform  Negotiable  Instruments  Law,  Sec  60-69, 

;(io8) 


American  Commercial  Law.         109 

may  thereby  incur  a  liability  to  the  drawer  if  he 
thereby  break  his  contract,  but  does  not  incur  any 
to  the  payee  or  other  holder,  unless  he  has  accepted. 
Where  the  holder  is  entitled  to  have  the  bill  accepted 
before  payment,  in  the  cases  hereafter  stated,  a  re- 
fusal by  the  drawee  to  accept,  gives  the  holder  imme- 
diate right  of  recourse  to  the  drawer.  Because  the 
drawer  must  apply  to  the  drawee  for  acceptance  or 
payment  before  he  can  resort  to  the  drawer,  his 
liability  is  said  to  be  secondary.  The  liability  of  a 
drawer  of  a  check  is  governed  by  the  same  consider- 
ations. 

Sec.  85.  OF  DRAWEE  OF  BILL  OR  CHECK.  A 
person,  firm,  or  corporation  upon  whom  a  bill  or 
check  Is  drawn  cannot  be  made  liable  thereupon  unless 
there  Is  acceptance.  But  to  the  drawer  there  may  be  a 
liability  for  iFaiiure  to  accept  or  failure  to  pay,  if  such 
failure  amounts  to  a  breach  of  contract. 

One  cannot  be  made  liable  by  reason  of  the  fact 
that  a  check  or  bill  has  been  drawn  upon  him.  His 
failure  to  honor  such  check  or  bill  may  indeed 
amount  to  a  breach  of  a  previous  contract  upon  his 
part  to  honor  it  when  drawn,  but  his  liability  in  that 
event  is  only  to  the  drawer  and  only  upon  the  pre- 
vious contract,  not  upon  the  instrument. 

When  a  bank  refuses  to  honor  a  check  when  there 
are  sufficient  funds  to  cover  its  amount,  that  consti- 
tutes a  breach  of  the  implied  contract  that  the  bank 
will  honor  checks  drawn  upon  it  when  there  are 
funds  to  pay  it  and  the  drawer  can  have  damages. 

Sec.  86.  OF  ACCEPTOR.  The  acceptor  of  a  bill  of 
exchange,  contracts  to  pay  it  according  to  the  tenor 


110  Negotiable  Paper. 

of   his  acceptance.  /(He  cannot   deny  the  existence  of_ 
the  drawer  or  payee^or  the  capacity  of  the  first  to  draw, 
/the  second  to  Indorse  the  instrument,,  pr  the  genuine- 
ness  of   the   drawer's  signature.      His   liability  J«  pri- 


mary.   <=7 — c?-^    r^s.Ji.    sj^ 


^"^n^-* 


A  drawee,  it  was  stated,  may  accept  by  general  or 
modified  acceptance,  if  the  holder  consents  to  take 
a  modified  acceptance.  Whatever  the  tenor  of  the 
contract  is,  that  is  the  acceptor's  undertaking. 

He  admits  the  drawer's  existence  and  the  capacity 
to  draw  the  paper.  If  the  paper  has  been  indorsed 
by  payee,  he  cannot  question  the  capacity  to  so  en- 
dorse. He  may  not  question  the  signature  of  the 
drawer.  It  is  his  duty  to  know  such  signature. 
But  signatures  of  indorsers  he  need  not  know  and 
if  any  has  been  a  forgery  he  may  set  that  up. 

His  contract  is  complete  when  the  acceptance  is 
made  and  delivered  to  the  holder  or  his  agent,  and 
innocent  purchasers  for  value  may  thereafter  hold 
such  acceptor  to  his  contract  whether  they  became 
such  before  or  after  his  acceptance. 

Sec.  87.  CONTRACT  OF  UNQUALIFIED  INDORSER. 
An  unqualified  Indorser  warrants  (1)  the  capacity  of 
prior  parties;  (2)  the  genuineness  of  the  instrument; 
(3)  the  genuineness  of  his  title  thereto;  (4)  that  the 
Instrument  will  not  be  dishonored  by  non-acceptance 
(if  bill)  or  non-payment;  and  undertakes  that  If  for 
any  of  these  reasons  or  otherwise  the  instrument  Is 
unpaid  at  maturity  he  will  pay  the  amount  thereof  to 
the  holder  provided  proper  steps  are  taken  to  charge 
him.      His  liability  is  secondary. 

An  indorser  who  indorses  specially  or  in  blank, 
but  without  qualification,  by  his  indorsement  war- 


Ambbican  Commbecial  Law.         Ill 

rants  -the  several  things  above  set  out.  If  the  in- 
strument is  not  paid  at  maturity  by  reason  of  any 
defense  that  could  be  set  up  against  a  holder  in  due 
course,  as  minority,  forgery,  and  the  like,  the  in- 
dorser  may  be  sued  upon  the  warranties  contained  in 
his  indorsement.  So  if  the  instrument  is  simply  un- 
paid not  by  reason  of  any  defenses,  but  merely  be- 
cause the  party  primarily  liable  is  insolvent  or  will 
not  pay,  the  indorser  may  be  proceeded  against  by 
the  holder. 

He  undertakes  that  he  will  pay  the  amount  of 
the  instrument  to  the  holder.  It  doesn't  concern 
him  whether  the  present  holder  became  such  before 
or  after  maturity,  or  what  value  he  gave,  or  that 

he  did  or  did  not  give  any  value,  unless  these  ques- 
tions become  material  for  the  reason  the  holder  has 
a  defense  to  make,  and  desires  to  show  that  the 
holder  was  not  such  in  due  course  or  did  not  de- 
rive a  title  from  a  holder  in  due  course. 

An  indorser  must,  unless  he  has  a  defense  which 
he  can  interpose  as  above,  pay  the  face  value  of  the 
note.  His  liability,  when  fixed,  becomes  similar  to 
that  of  a  maker  of  a  note  and  is  governable  by  the 
same  rules  except  that  it  is  secondary  and  must  be 
fixed  by  certain  procedure  hereafter  discussed. 


Sec.  88.  CONTRACT  OF  ONE  WHO  NEGOTIATES 
INSTRUMENT  BY  MERE  DELIVERY,  I.  e.  WITHOUT 
INDORSEMENT.  Such  party  warrants  to  his  Imme- 
diate transferee  and  him  only  (1)  capacity  of  prior 
parties;  (2)  the  genuineness  of  the  Instrument;  (3) 
the   genuineness   of    his   own   title;    and    (4)    that    h« 


lU  Negotiable  Paper. 

knows  of  nothing  Impairing  the  validity  of  the  lnstru> 
ment. 

In  all  the  cases  in  which  an  instrument  may  be 
construed  as  payable  to  bearer,  it  may  be  trans- 
ferred by  mere  delivery.  In  such  case  the  trans- 
feror warrants  the  things  set  forth  in  the  text  above, 
but  only  to  his  immediate  transferee.  If,  however, 
he  indorses  the  instrument,  without  adding  words 
of  qualification,  he  then  becomes  liable  as  set  forth 
in  the  section  next  above. 

8eo.  89.  CONTRACT  OF  QUALIFIED  INDORSER. 
An  Indoraer  who  qualifies  his  Indorsement  warrants  all 
the  things  set  forth  In  section  88. 

An  indorser  whose  liability  is  qualified  by  the 
words  "without  recourse"  nevertheless  warrants  to 
all  subsequent  holders,  that  he  knows  of  nothing 
impairing  its  validity,  the  capacity  of  all  prior  par- 
ties, and  the  validity  of  his  own  title.  But  he  does 
not  warrant  that  the  instrument  will  be  paid  where 
the  defense  is  not  based  on  any  of  these  grounds, 
but  simply  refused  because  of  the  maker's  insol- 
vency, etc. 

Thus,  suppose  A  makes  a  note  to  B's  order,  which 
B  indorses  to  C  who  in  turn  indorses  it  "without 
recourse"  to  D.  A  is  an  infant  and  refuses  pa)nnient 
on  that  ground.  D  can  hold  C.  But  if  A  is  an 
insolvent,  C  cannot  be  held,  for  he  has  said  "with- 
out recourse/* 


American  Commercial  Law.         113 
sec.  90.    contract  of  anomalous  indorser. 

An  anomalous  Indorser  is  liable  as  a  general   Indorser 
unless  he  provides  otherwise  by  appropriate  words. 

An  irregular  indorsement  is  called  an  "anomalous 
indorser."  One  who  makes  an  irregular  or  anomalous 
indorsement  of  a  negotiable  instrument  is  deemed  to 
have  indorsed  in  order  to  assume  the  liability  of 
a  regular  indorser.  He  may,  however,  by  adding 
other  words,  vary  his  contract. 

Sec.  91.  ORDER  OF  LIABILITY  AMONG  IN- 
DORSERS.  "As  respects  one  another  Indorsers  are  liable 
prima  facie  In  the  order  in  which  they  indorse;  but 
evidence  Is  admissible  to  show  that  as  between  or 
among  themselves  they  have  agreed  otherwise." 
(Uniform  Law,  Sec.  68.) 

Suppose  that  M  makes  a  note  payable  to  A,  which 
is  by  A  indorsed  to  B,  and  by  B  to  C,  and  by  C  to 
D.  In  order  to  hold  any  one  except  M,  D  must 
present  the  note  to  M  for  payment  at  maturity  and 
save  his  rights  against  the  indorsers  by  notice.  He 
then  may  sue  A,  or  B,  or  C.  If  he  sues  B,  B  may 
sue  A,  but  not  C. 


e  B— 9 


CHAPTER  12. 

THE  PROCEDURE  NECESSARY  TO  FIX  THE  LIABILITY  OF 
THE    PARTIES. 

Sec.  92.  GENERAL  STATEMENT.  In  order  to  fix 
the  liability  of  parties  secondarily  liable  on  a  negotiable 
Instrument  It  Is  necessary  to  take  certain  steps  provided 
by  law  for  the  benefit  of  such  parties;  except  where 
owing  to  peculiar  circumstances  they  are  excused,  and 
also  except  where  they  are  waived. 

Parties  primarily  liable  on  a  negotiable  instru- 
ment know  that  they  should  pay  it,  and  pay  it  when 
due,  and  therefore  there  is  no  reason  why  any  cer- 
tain procedure  should  be  taken  to  fasten  the  liability 
upon  them.  If  the  instrument  is  not  paid  at  ma- 
turity such  parties  primarily  liable  may  be  imme- 
diately sued  or  sued  any  time  thereafter  until  the 
statute  of  limitations  runs,  and  it  is  simply  neces- 
sary to  show  the  maturity  of  the  instrument  and 
that  it  is  unpaid.  But  parties  secondarily  liable  do 
not  know  that  they  will  ever  be  called  upon  to  pay 
the  instrument,  and  their  liability  does  not  accrue 
until  the  party  primarily  liable  has  made  default  in 
his  engagement.  Such  secondary  parties  have,  there- 
fore, for  their  protection,  the  right  to  demand  that 
all  due  diligence  be  made  to  charge  the  primary 
party  and  that  upon  his  default,  they  receive  im- 
mediate notice  thereof.  To  this  end  custom  required, 
and  the  law  now  provides,  that  where  the  holder 
of  an  instrument  desires  to  charge  the  parties  sec- 
ondarily liable  thereon  he  must  go  through  a  certain 

(114) 


American  Commercial  Law.         115 

procedure^  otherwise  such  secondary  parties  arc  dis- 
charged. What  steps  are  necessary  to  charge 
various  parties  will  now  be  considered. 

A.     Presentment  for  Payment  at   Maturity  to  Parties 
Primarily  Liable. 

Sec.  93.  NOT  NECESSARY  TO  CHARGE  PARTIES 
PRIMARILY  LIABLE.  Presentment  of  a  note  to  the 
maker  thereof,  or  of  an  accepted  bill  to  the  acceptor 
thereof  at  its  maturity,  Is  not  necessary  to  fix  the  lia- 
bility of  such  maker  or  acceptor.  But  if  a  place  of 
payment  is  provided  in  the  instrument,  and  tlie  party 
liable  thereon  has  funds  there  at  maturity  to  pay  it, 
but  no  presentment  is  there  and  then  made,  that  will 
bar  further  interest  and  costs,  and  the  right  to  have 
the  instrument  paid  at  such  place. 

The  neglect  of  a  holder  of  negotiable  paper  to 
present  it  for  pa)mient  at  its  maturity  to  the  party 
primarily  liable  thereon  (maker  of  a  note,  or  ac- 
ceptor of  a  bill  or  check)  will  not  operate  to  dis- 
charge such  parties.  Such  a  rule  is  highly  reason- 
able. For  instance,  if  one  has  borrowed  $S,ooo  for 
one  year  and  given  his  note  therefor,  and  the  holder 
has  not  on  the  maturity  of  such  note  presented  it  for 
payment,  it  would  be  most  unconscionable  to  hold 
that  the  holder  of  the  note  had  thereby  lost  his  cause 
of  action.  He  does  not  even  lose  his  right  to  inter- 
est, for  the  burden  is  on  the  maker  of  such  note  to 
see  that  it  is  paid  when  it  matures. 

We  must  note,  however,  at  this  point,  the  effect 
of  failure  to  present  for  payment  to  the  maker  or 
acceptor  when  there  is  a  place  for  payment  stated. 
First,  note  that  no  peculiar  results  follow  and  the 
rule  is  the  same  as  where  no  place  of  payment  is 


116  Negotiable  Paper. 

specified  unless  the  party  liable  was  at  such  place, 
that  is,  has  funds  there,  for  the  payment  of  the 
instrument.  If  he  was  at  such  place  to  make  pay- 
ment, but  did  not  find  the  instrument  there  for  de- 
livery to  him  on  payment,  he  is  excused  from  pay- 
ing interest  accruing  after  maturity,  from  paying 
costs  incidental  to  further  presentment,  and  from 
any  obligation  to  go  to  the  place  named  to  make 
payment.  By  failing  to  have  the  paper  at  such 
place  of  payment  at  its  maturity  the  holder  has  for- 
feited the  right  to  have  it  there  paid.  When,  how- 
ever, he  thereafter  makes  actual  presentment  to  the 
party  liable,  payment  must  be  made,  for  tender  must 
be  kept  good. 

If  an  instrument  is  payable  at  a  certain  bank,  and 
on  the  date  of  the  maturity  of  the  instrument  the 
party  liable  thereon  has  funds  on  deposit  at  such 
bank,  is  the  bank  authorized  to  pay  out  of  such 
funds,  there  being  no  express  direction?  Courts 
have  held  both  ways.  But  the  Negotiable  Instru- 
ments Act  settles  it  that  a  provision  in  an  instru- 
ment that  it  is  payable  at  a  bank,  is  equivalent  to 
an  order  upon  the  bank  to  pay  the  instrument  if 
there  are  funds  sufficient  for  that  purpose.  •*^* 

Sec.  94.  PRESENTMENT  FOR  PAYMENT  NECES- 
SARY TO  CHARGE  PARTIES  SECONDARILY  LIABLE. 
Pregentment  for  payment  at  maturity  to  the  party  pri- 
marily liable,  Is  necessary  to  charge  parties  secondarily 
liable;  except  where  excused  or  waived. 

To  fix  the  liability  of  the  drawer  and  the  in- 
dorsers  on  a  bill  (which  has  not  been  previously 

40a.    Illinois  and  Nebraska  have  omitted  this  section. 


American  Commercial  Law.         117 

dishonored  by  non-acceptance)  it  is  necessary  to 
present  the  bill  for  payment  at  the  maturity  to  the 
drawee  or  acceptor.  To  fix  the  liability  of  the  in- 
dorsers  on  a  promissory  note,  it  is  necessary  to  pre- 
sent the  note  for  payment  at  its  maturity  to  the 
maker.  If  this  step  of  presentment  is  not  taken,  the 
drawer  or  indorser  might  well  enough  claim  that 
if  the  presentment  had  been  made  to  the  party 
primarily  liable  thereon,  he  might  have  paid  it.  That 
being  so,  the  party  only  secondarily  liable  ought 
not  to  have  to  pay  it.  Accordingly  he  is  discharged. 
There  are  certain  exceptions.  Presentment  may  be 
waived  by  the  drawer  or  indorser,  or  the  circum- 
stances may  excuse  presentment. 

Sec.  95.  WHAT  PRESENTMENT  SUFFICIENT. 
In  order  to  charge  parties  secondarily  liable,  present- 
ment for  payment  must  be  made  (1)  by  the  holder  or 
his  agent  In  that  behalf;  (2)  on  the  day  of  the  maturity 
of  the  Instrument;  (3)  at  a  proper  hour  as  by  the  law 
defined;  (4)  at  a  proper  place,  as  by  the  law  defined; 
(5)  to  the  person  primarily  liable,  or  in  his  absence  or 
Inaccessibility,  to  any  person  found  at  the  place  of 
presentment;  (6)  by  exhibiting  the  paper  and  demand- 
ing payment  thereof. 

The  law  sets  forth  clearly  and  in  detail  what  pre- 
sentment shall  be  deemed  sufficient  and  reference  is 
made  to  section  70-78,  Appendix  A  in  connection 
herewith. 

(1)      Presentment  by  whom. 

This  must  be  the  holder  or  his  agent  in  that 
behalf.  Possession  of  a  negotiable  instrument  pay- 
able to  bearer,  or  properly  indorsed  shows  prima 
facie  authority  to  receive  payment.    One  may  hold 


118  Negotiable  Papee. 

paper  merely  as  an  agent  to  receive  payment,  as 
shown  by  the  form  of  the  indorsement,  or  by  any 
other  evidence. 

If  the  holder  is  dead,  his  personal  representative 
should,  make  presentment. 

(2)      Date  of  presentment. 

This  is  the  date  of  its  maturity.  If  it  is  demand 
paper  it  must  be  presented  within  a  reasonable  time 
to  charge  the  drawer  or  indorsers.  What  time  is 
reasonable  depends  on  circumstances.  Paper  ma- 
tures on  the  date  specified  for  payment,  without 
grace,  for  grace,  which  was  allowed  at  common 
law,  has  been  abolished  in  most  states.  If,  how- 
ever, this  day  is  a  holiday,  or  Saturday  or  Sunday, 
the  following  business  day  is  the  proper  day  on 
which  to  make  presentment,  though  demand  paper 
may  be  presented  before  12  o'clock  noon  on  Satur- 
day when  not  a  holiday. 

Time  is  computed  by  excluding  the  day  on  which 
it  begins  to  run  and  including  the  day  of  payment. 
A  month  is  a  calendar  month. 

Thus,  a  note  payable  30  days  after  date,  and 
which  is  dated  May  30th  would  be  due  on  the  thir- 
tieth day  after  May  30th.  That  is,  the  first  of  the 
thirty  days  would  be  May  31st.  The  last  of  such 
thirty  days  would  be  June  29th,  and  this  would  be 
the  day  of  maturity  on  which  presentment  must  be 
made  to  charge  the  indorsers,  if  any,  though  of 
course  failure  to  then  present  it  would  not  dis- 
charge the  maker.  A  note  dated  January  31st,  due 
one  month  from  date  would  be  due  February  28th, 
or,  if  leap  year,  February  29th.     A  note    dated 


American  Commeecial  Law.         119 

January  15th,  due  one  month  from  date  would  be 
due  February  15th. 

(3)  Hour  of  presentment. 

This  must  be  a  reasonable  hour  or  if  payable  at  a 
bank,  during  banking  hours,  unless  the  party  liable 
have  no  funds  there  during  banking  hours,  in  which 
case  presentment  before  the  bank  is  closed  is  suffi- 
cient. What  is  a  reasonable  hour  depends  on  the 
particular  customs  of  the  community.  What  might 
be  a  reasonable  hour  in  a  rural  district  might  not 
be  such  in  a  large  city. 

(4)  Place  of  presentment. 

If  there  is  a  place  of  presentment  specified,  of 
course  that  governs.  If  there  is  no  place  specified, 
then  the  law  provides  the  place  of  presentment.  We 
may  say  that  the  instrument  must  be  presented 
(i)  at  the  place  specified,  or  if  none,  then  (2)  at 
the  address  given,  or,  if  none,  then  (3)  at  usual 
place  of  business  or  residence,  or,  (4)  in  any  other 
case  where  the  party  can  be  found,  or  at  his  last 
known  place  of  residence. 

(5)  To  whom  presented. 

This  must  be  to  the  person  himelf,  or  to  his 
agent,  or  if  he  is  absent  or  inaccessible,  then  to 
any  person  found  at  the  place  where  presentment 
is  made.  If  the  person  liable  is  dead,  his  personal 
representative  must  be  sought  out,  if  with  reasonable 
diligence  he  can  be  found. 


120  Nbgotiablb  Paper. 

Where  several  parties  are  liable  as  co-makers  or 
co-acceptors,  whether  presentment  must  be  made 
to  all,  or  may  be  made  to  only  one,  depends  on 
their  relationship  to  each  other.  If  they  are  part- 
ners presentment  may  be  to  any  one,  unless  a  place 
of  presentment  is  stated.  If  not  partners,  then 
presentment  must  be  to  all,  unless  a  place  of  pre- 
sentment is  stated,  or  unless  one  or  more  of  them 
is  agent  of  the  others  in  that  regard. 

(6)     Instrument  exhibited. 

The  party  called  upon  to  pay  an  instrument  is 
entitled  to  have  it  exhibited.  Therefore  due  pre- 
sentment has  not  been  made  without  such  exhibi- 
tion. It  has  been  held  however  that  if  the  instru- 
ment is  lost  or  mislaid,  presentment  of  a  copy  with 
a  promise  of  reasonable  indemnity,  is  a  good  pre- 
sentment to  charge  the  drawer  and  indorsers. 

Sec.  96.  WHEN  PRESENTIVIENT  FOR  PAYIVIENT 
NOT  REQUIRED.  Presentment  for  payment  is  not 
required  wlien  tlie  circumstances  excuse  it  or  it  is 
waived,  in  these  cases  the  party  secondarily  liable  is 
not  discharged,  notwithstanding  such  lacl<  of  present- 
ment. 

(1)  Where  drawer  has  no  right  to  expect  or  require 
.the  drawee  or  acceptor  to  pay,  presentment  is  not  re- 
quired. 

If  one  draws  on  another  without  reasonable 
grounds  for  believing  that  the  drawee  will  pay,  he 
has  not  right  to  require  presentment  for  payment. 
This  depends  on  the  circumstances.  Even  if  he  has 
no  funds  with  the  drawee,  he  may  reasonably  expect 
acceptance. 


American  Commercial  Law.         121 

(2)  Where  an  instrument  is  made  or  accepted  to 
acccmmodate  an  indorser,  lie  cannot  require  present- 
ment for  payment. 

We  may  thus  illustrate  the  text :  A  for  B*s  accom- 
modation, that  is,  to  loan  B  his  credit,  makes  a 
note  to  B,  which  B  indorses  to  C.  B  is  in  this 
case  the  only  real  debtor,  and  A  has  indorsed  on 
the  theory  that  B  will  pay  when  the  instrument  is 
due.  B  therefore  has  no  right  to  complain  because 
it  was  not  presented  to  A,  for  payment. 

(3)  Presentment  for  payment  is  dispensed  with, 
where  after  the  exercise  of  reasonabie  diiigence  it  can- 
not be  made. 

What  constitutes  reasonable  diligence  depends  on 
the  circumstances.  Looking  one  up  in  a  directory 
and  not  availing  one's  self  of  other  available  means 
of  information  would  not  be  reasonable  diligence. 
But  it  is  impossible  to  lay  down  definite  rules.  One 
must  simply  do  what  an  ordinarily  prudent  person 
would  do  under  the  circumstances  where  one  has 
made  no  presentation.  The  burden  of  showing  that 
he  exercised  reasonable  diligence  is  on  him. 

(4)  Presentment  for  payment  is  dispensed  with 
where  the  drawee  is  a  fictitious  person. 

(5)  Parties  entitled  to  presentment  may  waive  It  by 
word  or  conduct. 

A  waiver  of  presentment  for  payment  (as  well 
as  other  steps  to  fix  liability)  is  often  embodied  in 
the  instrument  itself.     If  so,  all  parties  are  bound 


122  Nejgotiablb  Papbe. 

by  it  including  all  subsequent  indorsers.  Sometimes 
a  waiver  is  embodied  in  the  individual  indorsement. 
Any  one  could  also  waive  right  to  presentment  in 
any  separate  instrument  or  by  his  conduct. 

B.     Presentment  of  Bill  for  Acceptance.4i 

Sec.  97.  PRESENTMENT  FOR  ACCEPTANCE 
NECESSARY  IN  CERTAIN  CASES  TO  CHARGE 
DRAWER  AND  INDORSERS.  In  order  to  charge  the 
drawer,  presentment  for  acceptance  to  the  drawee  is 
necessary  (except  where  excused  by  circumstances)  in 
the  following  cases: 

"First:  Where  the  bill  is  payable  after  sight,  or 
in  any  other  case  where  presentment  for  acceptance 
is  necessary  in  order  to  fix  the  maturity  of  the  in- 
strument; or 

"Second :  Where  the  bill  expressly  stipulates  that 
it  shall  be  presented  for  acceptance; 

"Third :  Where  the  bill  is  drawn  elsewhere  than 
at  the  residence  or  place  of  business  of  the  drawee." 

In  these  cases,  the  presentment  of  a  bill  of  ex- 
change for  acceptance  is  necessary  to  charge  the 
drawer  and  indorsers.  In  other  cases  presentment 
for  payment  at  maturity  is  sufficient. 

Where  presentment  for  acceptance  is  not  required 
it  may  nevertheless  be  made,  for  two  purposes: 

First:  To  obtain  as  soon  as  possible  the  lia- 
bility of  the  drawee,  as  an  acceptor;  and,  second: 
To  give,  in  case  of  non-acceptance,  a  right  of  im- 
mediate recourse  against  the  drawee  and  the  in^ 
dorsers. 

41.    Uniform  Negotiable  Instruments  Law,  Sees.  143-151. 


American  Commercial  Law.         123 
sec.  98,  what  presentment  for  acceptance 

SUFFICIENT.  In  order  to  charge  parties  secondarily 
liable  presentment  of  a  bill  for  acceptance  must  be 
made,  (1)  by  or  on  behalf  of  the  holder;  (2)  within  a 
reasonable  time  (or  negotiated  within  a  reasonable 
time)  on  a  business  day  before  the  instrument  Is  over- 
due; (3)  at  a  reasonable  hour;  and  (4)  to  the  drawee, 
his  agent  In  that  behalf,  or  his  personal  representa- 
tive. 

(1)  Party  who  must  make  presentment  for  accept- 
ance. 

This  must  be  the  holder  of  some  one  who  acts 
in  his  behalf.  The  holder  might  be  the  original 
payee  or  a  transferee  of  such  payee. 

(2)  Date  of  presentment  for  acceptance. 

There  is  no  exact  date  on  which  presentment  for 
acceptance  must  be  made,  but  it  must  be  made  be- 
fore the  instrument  is  overdue  on  a  business  day. 
It  may  be  presented  for  acceptance  on  any  day  on 
which  an  instrument  may  be  presented  for  payment, 
as  above  stated.  When  Saturday  is  not  a  holiday 
it  may  be  presented  before  I2  noon  on  such  day. 
This  day  must  fall  within  a  reasonable  time  from 
the  time  the  instrument  is  delivered  to  the  payee, 
or  within  a  reasonable  time  from  the  last  transfer. 
For  one  who  holds  an  instrument  which  requires 
acceptance,  must  present  it  for  acceptance  or  nego- 
tiate it  within  a  reasonable  time.  So  it  might  be 
negotiated  a  number  of  times  before  it  was  finally 
presented  for  acceptance  and  if  such  succeeding  ne- 
gotiation was  made  within  a  reasonable  time  since 


124  Negotiable  Papbe. 

the  former  negotiation  and  the  presentment  for  ac- 
ceptance made  within  a  reasonable  time  after  the 
last  negotiation  and  before  maturity,  there  would 
be  no  discharge  of  the  drawer  or  prior  indorsers. 

(3)  Hour  of  presentment  for  acceptance. 

A  bill  of  exchange  may  be  presented  at  any  hour 
at  which  a  bill  might  be  presented  for  payment,  as 
above  stated. 

(4)  To  whom   presented  for  acceptance. 

It  must  be  presented  for  acceptance  to  the  drawee 
personally,  or  to  an  agent  who  has  authority  to 
accept  or  reject.  If  severali  drawees,  acceptance 
must  be  made  to  all,  except  where  one  or  more  are 
agent  for  the  others  in  that  behalf  or  are  partners. 
If  the  drawee  is  dead  presentment  may  be  made  to 
his  personal  representative;  if  he  is  a  bankrupt  or 
has  made  an  assignment  presentment  may  be  made 
either  to  him,  or  his  trustee  or  assignee. 

Sec.  99.  WHEN  PRESENTMENT  FOR  ACCEPTANCE 
IS  EXCUSED.  In  the  cases  in  which  ordinarily  pre- 
sentment for  acceptance  must  be  made,  it  is  excused  in 
certain  cases,  and  in  those  cases  the  bili  may  be 
treated  as  dishonored  for   non-acceptance. 

(i)  "Where  drawee  is  dead,  or  has  absconded, 
or  is  a  fictitious  person,  or  is  a  person  not  having 
capacity  to  contract  by  bill. 

(2)  "Where  after  the  exercise  of  reasonable  dil- 
igence, presentment  cannot  be  made; 


American  Commercial  Law.         125 

(3)  "Where  though  presentment  has  been  irreg- 
ular, presentment  is  refused  on  some  other  ground." 

Sec.  100.  RIGHTS  OF  HOLDER  WHERE  BILL  NOT 
ACCEPTED.  If  a  bill  Is  presented  for  acceptance  within 
the  time  and  In  the  manner  stated,  and  Is  not  accepted, 
or  If  presentment  Is  excused,  the  bill  may  be  treated  as 
dishonored  by  non-acceptance  and  an  immediate  right 
of  recourse  accrues  against  the  drawer  and  indorsers. 

Where  the  bill  is  dishonored  by  non-acceptance,  an 
immediate  right  of  recourse  accrues  against  prior 
parties.  This  is  true  not  only  in  cases  where  pre- 
sentment for  acceptance  is  required  in  order  to  fix 
the  liability  of  the  prior  parties,  but  also  in  any 
case  where  actual  presentment  has  been  made  and 
acceptance  refused.  Thus  suppose  that  on  January 
2,  1910,  A  draws  a  bill  on  B,  to  order  of  C,  due  in 
three  months.  On  the  same  day  the  bill  is  delivered 
to  C,  and  he  indorses  to  D.  D  on  January  3rd 
applies  to  B  for  acceptance.  B  refuses  to  accept. 
D  may  proceed  at  once  against  A  and  C  if  he  has 
duly  notified  them,  and  need  not  wait  until  the  three 
months  have  expired. 

C.     Notice  of  Dl8honor.42 

Sec.  101.  NOTICE  OF  DISHONOR  NECESSARY  TO 
CHARGE  DRAWER  AND  INDORSER.  Notice  to  the 
drawer  of  a  bill  or  checl<  and  to  the  indorser  of  a  bill, 
checi<  or  note,  that  It  has  been  dishonored  by  non-pay- 
ment, or  non-acceptance,  as  the  c.ase  may  be,  is  neces- 
sary to   charge   such   drawer    and    indorser;    otherwise 

42.    Uniform  Negotiable  Instruments  Law,  Sees.  89-118. 


126  Negotiable  Paper. 

they  are  discharged;  except  where  owing  to  the  cir- 
cumstances of  the  particular  case,  notice  is  excused,  or 
where  it  has  been  waived. 

A  party  secondarily  liable  on  negotiable  paper  is 
entitled  to  immediate  notice  that  the  party  who 
should  have  accepted  it,  or  paid  it,  has  failed  or 
refused  to  do  so.  Accordingly  the  law  provides 
in  detail  as  to  the  time,  manner  and  sufficiency  of 
the  notice.  And  unless  notice  is  given  according  to 
the  provisions  of  the  law,  any  party  entitled  to  such 
notice,  who  did  not  receive  it,  is  discharged.  See 
sections  89  to  118  in  Appendix  A  in  connection  with 
this  text. 

Sec.  102.  WHAT  NOTICE  SUFFICIENT.  In  order 
to  charge  parties  secondarily  liable  on  a  negotiable 
Instrument  notice  of  dishonor  must  be  given  to  such 
party  (1)  by  the  holder,  or  any  one  who  might  be  com- 
pelled to  pay  it  to  the  holder,  or  an  agent  duly  author- 
ized, (2)  within  the  times  provided  by  the  law,  (3)  at 
the  place  provided  by  law;  unless  owing  to  peculiar 
circumstances  notice  is  excused,  or  has  been  waived. 

To  set  out  in  the  text  here  all  the  detail  concern- 
ing the  requirements  of  notice  would  be  unnecessary 
duplication.    See  sections  91  to  104  in  Appendix  A. 

Sec.  103.  WHEN  NOTICE  TO  DRAWER  IS 
EXCUSED.  Notice  to  drawer  is  excused  when  after 
the  exercise  of  reasonable  diligence  it  cannot  be  given 
to  or  does  not  reach  such  drawer,  where  drawer  is 
fictitious  or  lacks  capacity  contract,  or  where  drawer 
is  the  person  to  whom  the  instrument  is  presented  for 
payment,  or  where  drawer  has  no   right  to  expect  or 


American  Commercial  Law.         127 

require  the  drawee  or  acceptor  to  honor  the  instrument, 
or  where  the  drawer  has  countermanded  payment. 

The  law  does  not  require  notice  to  a  drawer  of 
an  instrument  where  it  would  be  superfluous,  or 
where  there  is  no  right  to  expect  it,  or  where  it 
cannot  with  reasonable  diligence  be  given. 

Sec.  104.  WHERE  NOTICE  TO  INDORSER  EX- 
CUSED.  Notice  to  indorser  is  excused  where  after 
the  exercise  of  reasonable  diligence  it  cannot  be  given 
or  does  not  reach  such  indorser,  or  where  indorser  at 
the  time  of  the  indorsement  knew  that  the  drawee  was 
fictitious  or  had  no  capacity  to  contract,  or  where 
Indorser  is  the  person  to  whom  the  Instrument  is  pre> 
sented  for  payment,  or  where  the  instrument  was  made 
or  accepted  for  his  accommodation. 

Sec.  105.  WHEN  NOTICE  OF  DISHONOR  WAIVED. 
The  party  entitled  to  notice  may  waive  it  by  waiver 
embodied  In  the  instrument  or  in  his  indorsement,  or  by 
word  or  deed,  before  or  after  time  for  giving  notice. 

A  party  otherwise  entitled  to  notice  may  waive  it. 
This  he  may  do  either  by  his  express  language  or 
by  his  conduct.  The  waiver  may  be  embodied  in 
the  instrument  itself,  and  in  that  case  it  binds  all 
who  indorse  the  instrument  or  it  may  be  in  the 
individual  indorsement.  Waiver  may  be  made  at 
any  time,  even  after  the  right  to  have  notice  has 
gone  by.  Thus  if  an  indorser  promises  to  pay 
the  instrument  when  he  would  be  discharged  by 
lack  of  notice,  that  operates  as  a  waiver  and  he  will 
be  bound. 

Where  one  "waives  protest,"  he  thereby  also 
waives  presentment  and  notice  of  dishonor. 


128  Negotiable  Paper. 

D.      Protest.43 

Sec.  106.  PROTEST  NECESSARY  TO  CHARGE 
DRAWER  AND  INDORSER  ON  FOREIGN  BILL.  Where 
a  foreign  bill  Is  dishonored  by  non-acceptance  or  non- 
payment It  must  be  protested;  otherwise  the  drawer 
and   Indorser  are  discharged. 

Any  bill  which  on  its  face  appears  to  be  a  foreign 
bill  must  be  protested  for  non-acceptance  or  non- 
payment as  the  case  may  be,  else  the  drawer  and  in- 
dorsers  will  be  discharged.  Inland  bills  and  promis- 
sory notes  do  not  need  to  be  protested,  yet  often  are, 
to  furnish  evidence  of  due  presentment  and  giving 
notice  of  dishonor. 

A  form  of  protest  is  set  out  in  Appendix  B. 

Protest  is  made  when  the  officer  or  party  entitled 
under  the  law  to  make  protest,  takes  the  instrument 
to  the  place  where  it  may  be  under  the  law  presented 
for  acceptance  or  payment  and  there  presents  the  in- 
strument, and  demands  payment  thereon.  He  then 
sets  forth  in  writing  the  details  of  such  presentment, 
and  the  demand  and  the  refusal,  giving  the  time  and 
place  of  presentment,  the  fact  of  presentment,  and 
the  manner  thereof,  the  cause  or  reason  for  protest- 
ing the  bill,  the  demand  made  and  the  answer  given, 
if  any,  or  the  fact  that  the  party  sought  could  not 
be  found.  Such  protest  must  be  under  the  hand  and 
seal  of  the  notary  making  it,  if  it  is  made  by  a  notary, 
as  is  usual. 

Sec.  107.  WHO  AUTHORIZED  TO  MAKE  PROTEST. 
Protest   may  be  made  by  a   notary  public;   or  by  any 

43.    Uniform  Negotiable  Instruments  Act,  Sees.  152-160. 


American  Commbecial  Law.         129 


respectable  resident  of  the  place  where  the  bill  Is 
dishonored  in  the  presence  of  two  or  more  credible 
witnesses. 

Protest  is  almost  universally  made  by  a  notary 
public.  The  other  provision  is  made  in  case  a  no- 
tary is  unavailable.  Such  notary  must  make  the 
protest  in  person. 

Sec.  108.  TIME,  PLACE  AND  MANNER  OF  PRO- 
TEST. The  protest  must  be  made  at  the  time,  In  the 
place  and  in  the  manner  set  forth  by  the  law. 

The  details  of  making  protest  are  set  out  fully  in 
Appendix  A,  in  sections  153  to  156  and  are  so  com- 
plete as  to  require  no  comment. 

Sec.  109.  PROTEST  DISPENSED  WITH  OR 
WAIVED.  Protest  is  dispensed  with  In  any  case  which 
would  dispense  with  notice  of  dishonor.  So  it  may  be 
waived  in  the  same  way  that  notice  of  dishonor  may 
be  waived. 


'     PART  IV. 

DISCHARGE  OF  NEGOTIABLE  INSTRUMENTS. 

CHAPTER  13. 

MANNER  AND   EFFECT   OF   DISCHARGE.** 

Sec.  110.  MEANING  OF  TERM  "DISCHARGE."  A 
contract  Is  discharged  when  It  loses  Its  force  and  effect 
a&  a  legal  obligation. 

A  discharged  contract  is  one  which  for  some  rea- 
son is  no  longer  in  force.  It  has  lost  its  former  legal 
effect.  A  paper  may  express  a  promise  to  pay 
money,  yet  the  promise  may  be  without  any  life  in 
it,  and  not  be  expressive  of  any  legal  obligation. 
This  may  be  true  because  the  promise  has  been  per- 
formed, or  for  other  reasons  that  we  will  note. 

Sec.  111.  CAUSES  OF  DISCHARGE  OF  PAPER.  DIs- 
charge  may  be  (1)  by  payment  In  due  course  by  or  for 
the  debtor;  (2)  by  payment  of  accommodation  paper  by 
accommodated  party;  (3)  by  Intentional  cancellation  by 
holder;  (4)  by  the  acquisition  of  the  paper  at  or  after 
maturity  by  the  principal  debtor. 

(i)  By  pa)rment  in  due  course  by  or  for  the 
principal  debtor.    Payment  by  the  maker  or  acceptor 

44.    Uniform  Negotiable  Instruments  Act,  Sees.  119-125. 

:(i30) 


Ameeioan  Commercial  Law.         131 

is  the  most  usual  method  of  discharging  a  note  or 
bill.  Assuming  that  there  are  no  accommodation 
parties,  but  that  the  party  primarily  liable  on  the 
paper  pays  it  when  it  becomes  mature  or  after  its 
maturity  this  discharges  it  and  it  thereafter  becomes 
only  so  much  waste  paper  so  far  as  any  legal  obliga- 
tion is  concerned.  One  who  pays  such  paper  ought, 
of  course,  as  a  matter  of  ordinary  precaution,  to 
see  that  it  is  cancelled  and  given  to  him.  And  we 
have  seen  that  one  who  pays  negotiable  paper  must 
take  care  that  he  is  paying  it  to  the  holder. 

If  a  party  secondarily  liable  upon  an  instrument 
pays  it,  the  instrument  is  not  discharged, 

(2)  By  payment  in  case  of  accommodation  paper 
by  the  party  accommodated.  The  real  debtor  may 
not  be  the  maker  or  acceptor.  One  may  have  be- 
come maker  of  a  note  or  acceptor  of  a  bill  for  the 
accommodation  of  another,  that  is,  in  order  to  lend 
him  credit.  Such  accommodator  is  liable  just  as  a 
surety  or  guarantor  is  liable,  although  the  creditor 
may  know  it  is  not  really  his  debt.  In  such  a  case 
it  is  the  real  debtor's  duty  to  pay  the  debt  and  if  the 
accommodating  party  pays  it,  he  may  sue  the  party 
whom  he  has  accommodated.  If  the  real  debtor 
pays  the  instrument,  then  it  is  discharged. 

(3)  By  intentional  cancellation  by  holder.  If  a 
cancellation  is  by  the  holder  with  the  intention  of 
destroying  the  instrument,  as  such,  it  destroys  it,  but 
if  the  cancellation  is  unintentional,  or  under  a  mis- 
take or  by  anyone  without  authority,  the  instrument 
is  not  destroyed. 

(4)  By  acquisition  of  the  instrument  by  the  prin- 
cipal debtor,  at  or  after  maturity.  If  one  makes  a 
note  and  at  or  after  its  maturity  buys  it  from  the 


132  Negotiable  Paper. 

holder  that  is  the  same  thing  as  paying  it  so  far  as 
discharging  the  instrument  is  concerned. 

Sec.  112.  DISCHARGE  OF  PARTY  SECONDARILY 
LIABLE.  A  party  secondarily  liable  is  discharged  (1) 
by  an  act  that  discharges  the  instrument;  (2)  by  Inten- 
tlonal  cancellation  of  his  signature  by  the  holder;  (3) 
by  a  valid  tender  of  payment  by  a  prior  party;  (4)  by 
release  of  the  principal  debtor  without  express  reserva- 
tion of  right  against  party  secondarily  liable;  (5)  by 
extension  of  time  of  payment  without  reserving  right 
against  the  party  secondarily  liable;  (6)  by  failure  of 
the  holder  to  take  the  proper  steps  to  hold  him. 

A  party  secondarily  liable  is  discharged  by  a  fail- 
ure of  a  holder,  as  we  have  seen,  to  take  the  proper 
steps  to  fix  his  liability.  In  such  a  case  the  instru- 
ment itself  is  not  discharged;  it  still  continues  as  a 
bill,  note  or  check  as  the  case  may  be,  and  the  par- 
ties primarily  liable  may  be  sued  upon  it. 

So  in  other  ways  a  party  secondarily  liable  may 
be  discharged  though  the  instrument  continues  in 
force.  One  is  a  valid  tender  of  payment  by  a  prior 
party.  This  does  not  discharge  the  instrument.  One 
who  owes  money  on  a  note  is  not  allowed  to  escape 
his  liability  if  he  may  succeed  in  making  a  tender 
which  is  not  accepted.  Tender  of  money  under  a 
debt  due  must  be  kept  good.  But  such  tender  does 
discharge  a  party  secondarily  liable.  This  debt  is 
not  really  his.  He  is  to  be  held  only  in  case  the 
party  does  not  pay  who  ought  to  pay.  Consequently 
his  rights  are  strictly  guarded  and  if  a  tender  is 
made  to  such  holder  which  such  holder  ought  to 
have  accepted,  such  secondary  party  may  say  that 
he  will  not  be  held   for  a  failure  of  the  party 


American  Commeecial  Law.  133 

primarily  liable  to  pay  when  the  holder  might  once 
have  had  payment  of  his  debt. 

Such  tender,  however,  must  be  a  valid  tender.  A 
tender  in  something  not  "legal  tender,"  or  a  tender 
of  the  wrong  amount  or  a  tender  before  the  instru- 
ment was  due,  would  not  be  good  tenders,  and 
would  not  discharge. 

If  the  holder  releases  the  principal  debtor  this 
will  discharge  the  party  secondarily  liable,  unless  at 
the  time  the  release  is  made  there  is  an  express  res- 
ervation made  by  the  holder  of  his  rights  against 
the  party  secondarily  liable. 

The  same  may  be  said  of  a  contract  to  extend  the 
time  of  payment.  A  mere  failure  to  sue,  or  a  mere 
unenforceable  agreement,  which  is  too  indefinite  to 
amount  to  a  contract  or  is  without  consideration,  and 
which  therefore  could  not  be  enforced  by  the  debtor, 
would  not  release  the  party  secondarily  liable,  if  his 
liability  had  been  duly  fixed  by  the  taking  of  the 
proper  steps. 

Sec.  113.  EFFECT  OF  PAYMENT  BY  PARTY 
SECONDARILY  LIABLE.  A  payment  by  a  party 
eecondariiy  liable  does  not  discharge  the  Instrument, 
but  such  party  Is  put  In  his  former  position  and  may 
assert  his  rights  against  prior  parties,  or  again  nego- 
tiate  the  paper. 

A  party  secondarily  liable  may  pay  the  paper 
without  discharging  it,  because  it  yet  has  to  be  paid 
by  the  party  primarily  liable.  Thus  suppose  A  makes 
a  note  to  B,  who  indorses  to  C,  who  indorses  to  D. 
D  being  unable  at  maturity  to  secure  payment  by  A, 
or  any  other  party,  C,  in  order  to  avoid  suit,  pays  it 
He  now  stands  in  the  same  situation  as  though  he 


134  Negotiable  Papee. 

had  not  indorsed  it,  and  may  sue  the  prior  parties  as 
he  could  have  done  before  indorsement.  Or,  strik- 
ing out  his  indorsement  to  D,  he  may  negotiate  it 
to  E,  and  thus  make  himself  again  secondarily  lia- 
ble if  the  instrument  cannot  be  enforced  by  E. 

Sec.  114,  MATERIAL  ALTERATION  AS  RELEAS- 
ING THOSE  NOT  PARTIES  THERETO.  If  an  instru- 
ment is  altered  In  any  material  respect  It  releases  all 
parties  who  did  not  authorize  or  assent  thereto  except 
that  an  Innocent  purchaser  for  value  may  enforce  it 
as  it  was  before  the  alteration. 

If  an  instrument  is  materially  altered,  it  releases 
those  who  do  not  authorize  or  assent  to  such  alter- 
ation except  as  far  as  innocent  purchasers  are  con- 
cerned, and  these  may  enforce  the  instrument  as 
it  was  in  its  original  form.  We  have  already  noted 
what  is  a  material  alteration,  and  have  considered 
how  one  by  a  negligent  drawing  of  paper  may  estop 
himself  to  say  that  it  is  altered  as  against  innocent 
parties. 

See.  115.  RENUNCIATION  OF  RIGHTS.  A  holder 
may  expressly  renounce  his  rights  against  any  party 
either  by  so  stating  In  writing  or  delivering  up  the 
Instrument. 

One  may  renounce  rights  against  any  party  or 
may  renounce  all  rights  upon  the  instrument.  If 
he  does  so,  the  party  or  the  instrument,  as  the  case 
may  be,  is  discharged.  The  discharge  must  be  in 
writing,  or  in  case  of  renunciation  of  rights  against 
the  principal  debtor,  it  may  be  by  delivery  up  of  the 
instrimient. 


APPENDIX  A. 

UNIFORM  NEGOTIABLE  INSTRUMENTS  LAW. 


APPENDIX  A. 

UNIFORM  NEGOTIABLE  INSTRUMENTS  LAW. 

(For  states  in  which  this  law  is  substantially  enacted, 
see  page  40,  note.) 
Sees. 
1-23.     Form  and  interpretatioa. 

24-29.     Consideration. 

80-50.     Negotiation. 

61-59.    Rights  of  the  holder. 

60-69.     Liabilities  of  parties. 

70-88.     Presentation  for  paymenC. 

89-118.  Notice  of  dishonor. 
119-125.  Discharge  of  negotiable  instruments. 

BIIJU9  OF  ExCHANaK. 

126-131.  Form  and  interpretation. 

132-142.  Acceptance. 

143-151.  Presentation  for  paymeni. 

152-160.  Protest. 

161-170.  Acceptance  for  honor. 

171-177.  Payment  for  honor. 

178-183.  Bills  in  a  set. 

Pbomissobt  Notes  and  CHiDaKS. 
184-189.  Form,  interpretation,  acceptance,  etc. 

Gensbai,  Pboyisioits. 
190-196.  Definitions. 

(137); 


138  Negotiable  Paper. 

Trnx  I. — ^Nbqotiabu!  Insteuments  ht  Geinekai^ 
Abttcle  I. — Form  and  Inteepbettation. 

Sec.  1.  An  instrument  to  be  negotiable  must  conform  to 
the  following  requirements: 

1.  It  must  be  in  writing  and  signed  by  the  maker  or 
drawer. 

2.  Must  contain  an  unconditional  promise  or  order  to  pay 
a  sum  certain  in  money. 

3.  Must  be  payable  on  demand  or  at  a  fixed  or  determin- 
able future  time. 

4.  Must  be  payable  to  the  order  or  to  bearer;   and, 

5.  Where  the  instrument  is  addressed  to  a  drawee,  he 
must  be  named  or  otherwise  indicated  therein  with  reason- 
able certainty. 

Sec.  2.  The  sum  payable  is  a  sum  certain  within  the 
meaning  of  this  Act,  although  it  is  to  be  paid: 

1.  With  interest;  or 

2.  By  stated  installments;  or 

3.  By  stated  installments,  with  a  provision  that  upon 
default  in  payment  of  any  installment,  or  of  interest  the 
whole  shall  become  due;  or 

4.  With  exchange,  whether  at  a  fixed  rate  or  at  the 
current  rate;  or 

6.  With  costs  of  collection  or  an  attorney's  fee,  in  case 
payment  shall  not  be  made  at  maturity. 

Sec.  3.  An  unqualified  order  or  promise  to  pay  is  uncon- 
ditional within  the  meaning  of  this  Act,  though  coupled 
with: 

1.  An  indication  of  a  particular  fund  out  of  which  reim- 
bursement is  to  be  made,  or  a  particular  account  to  be 
debited  with  the  amount;   or 

2.  A  statement  of  the  transaction  which  gives  rise  to  the 
instrument. 


American  Commercial  Law.         139 

But  an  order  or  promise  to  pay  out  of  a  particular  fund 
is  not  unconditional. 

Sec.  4.  An  instrument  is  payable  at  a  determinable  fu- 
ture time,  within  the  meaning  of  this  Act,  which  is  ex- 
pressed to  be  payable: 

1.  At  a  fixed  period  after  date  or  sight;  or 

2.  On  or  before  a  fixed  or  determinable  future  time  spec- 
ified therein;  or 

3.  On  or  at  a  fixed  period  after  the  occurrence  of  a  spec- 
ified event,  which  is  certain  to  happen,  though  the  time  of 
happening  be  uncertain. 

An  ingiirument  payable  upon  a  contingency  is  not  nego- 
tiable, and  the  happening  of  the  event'  d<SM  not  "ture  ixje 
(fefect;  -_,,—  _.  _^   -     _  -    ■        -  -  - 

Sec.  5.  An  instrument  which  contains  an  order  or  prom- 
ise to  do  an  act  in  addition  to  the  payment  of  money  is  not 
negotiable. 

But  the  negotiable  character  of  an  instrument  otherwise 
negotiable  is  not  affected  by  a  provision  which: 

1.  Authorizes  the  sale  of  collateral  securities  in  case 
the  instrument  be  not  paid  at  maturity;   or 

2.  Authorizes  a  confession  of  judgment;  or 

3.  Waives  the  benefit  of  any  law  intended  for  the  ad- 
vantage or  protection  of  the  obligator;  or 

4.  Gives  the  holder  an  election  to  require  something  to 
be  done  in  lieu  of  payment  of  money. 

But  nothing  in  this  section  shall  validate  any  provision 
or  stipulation  otherwise  illegal. 

Sec.  6.  The  validity  and  negotiable  character  of  an  in- 
strument are  not  affected  by  the  fact  that: 

1.  It  is  not  dated;  or 

2.  Does  not  specify  the  value  given,  or  that  any  value 
has  been  given  therefor;  or 


140  Negotiable  Paper. 

3.  Docs  not  specify  the  place  where  it  is  drawn  or  the 
place  where  it  is  payable;  or 

4.  Bears  a  seal;  or 

5.  Designates  a  particular  kind  of  current  mon^  in  which 
payment  is  to  be  made. 

But  nothing  in  this  section  shall  alter  or  repeal  any  stat- 
ute requiring  in  certain  cases  the  nature  of  the  consideration 
to  be  stated  in  the  instrument. 

Sec.  7.    An  instrument  is  payable  on  demand: 

1.  Where  it  is  expressed  to  be  payable  on  demand,  or  at 
sight,  or  on  presentation;  or 

2.  In  which  no  time  for  payment  is  expressed. 

Where  an  instrument  is  issued,  accepted  or  indorsed  when 
overdue,  it  is,  as  regards  the  person  so  issuing,  accepting 
or  indorsing  it,  payable  on  demand. 

Sec.  8.  The  instrument  is  payable  to  order  where  it  is 
drawn  payable  to  the  order  of  a  specified  person  or  to  him 
or  his  order.     It  may  be  drawn  payable  to  the  order  of: 

1.  A  payee  who  is  not  maker,  drawer  or  drawee;  or 

2.  The  drawer  or  maker;  or 

3.  The  drawee;  or 

4.  Two  or  more  payees  jointly;  or 

5.  One  or  more  of  several  payees;  or 

6.  The  holder  of  an  office  for  the  time  being. 

Where  the  instnmient  is  payable  to  order,  the  payee  must 
be  named  or  otherwise  indicated  therein  with  reasonable  cer- 
tainty. 

Sec.  9.    The  instrument  is  payable  to  bearer: 

1.  When  it  is  expressed  to  be  so  payable;  or 

2.  When  it  is  payable  to  a  person  named  therein  or 
bearer;  or 

8.    When  it  is  payable  to  the  order  of  a  fictitious  or  non- 


American  Commercial  Law.         141 

existing  person  and  such  fact  was  known  to  the  person  msk* 
ing  it  so  payable;  or 

4.  When  the  name  of  the  payee  does  not  purport  to  be 
the  name  of  any  person;  or 

5.  When  the  only  or  last  indorsement  is  an  indorsement 
in  blank. 

Sec.  10.  The  instrument  need  not  follow  the  language 
of  this  Act,  but  any  terms  are  sufficient  which  clearly  in- 
dicate an  intention  to  conform  to  the  requirements  hereof. 

Sec.  11.  When  the  instrument  or  an  acceptance  or  any 
indorsement  thereon  is  dated,  such  date  is  deemed  prima 
facie  to  be  the  true  date  of  the  making,  drawing,  accept- 
ance or  indorsement,  as  the  case  may  be. 

Sec.  12.  The  instrument  is  not  invalid  for  the  reason 
only  that  it  is  ante-dated  or  post-dated,  provided  this  is 
not  done  for  an  illegal  or  fraudulent  purpose.  The  person 
to  whom  an  instrument  so  dated  is  delivered  acquires  the 
title  thereto  as  of  date  of  delivery. 

Sec.  13.  When  an  instrument  expressed  to  be  payable 
at  a  fixed  period  after  date  is  issued  undated,  or  where  the 
acceptance  of  an  instrument  payable  at  a  fixed  period  after 
sight  is  undated,  any  holder  may  insert  therein  the  true 
date  of  issue  or  acceptance,  and  the  instrument  shall  b« 
payable  accordingly.  The  insertion  of  a  wrong  date  does 
not  avoid  the  instrument  in  the  hands  of  a  subsequent  holder 
in  due  course,  but  as  to  him,  the  date  so  inserted  is  to  be 
regarded   as  the  true   date. 

Sec.  14.  Where  the  instrument  is  wanting  in  any  mater- 
ial particular,  the  person  in  possession  thereof  has  a  prima 
jaoie  authority  to  complete  it  by  filling  up  the  blanks  there- 
in. And  a  signature  on  a  blank  paper  delivered  by  the  per- 
son making  the  signature  in  order  that  the  paper  may  be 
converted  into  a  negotiable  instrument  operates  as  a  prima 
facie  authority  to  fill  it  up  as  such  for  any  amount.  In 
order,  however,  that  any  such  instrument  when  completed 


142  Negotiable  Paper. 

may  be  enforced  against  any  person  who  became  a  party  there- 
to prior  to  its  completion,  it  must  be  filled  up  strictly  in 
accordance  with  the  authority  given  and  within  a  reason- 
able time.  But  if  any  such  instrument,  after  completion, 
is  issued  or  negotiated  to  a  holder  in  due  course  it  is  valid 
and  effectual  for  all  purposes  in  his  hands,  and  he  may 
enforce  it  as  if  it  had  been  filled  up  strictly  in  accordance 
with  the  authority  given  and  within  a  reasonable  time. 

Sec.  15.  Where  an  incomplete  instrument  has  not  been 
delivered  it  will  not,  if  completed  and  negotiated,  without 
authority,  be  a  valid  contract  in  the  hands  of  any  holder, 
as  against  any  person  whose  signature  was  placed  thereon 
before  delivery. 

Sec.  16.  Every  contract  on  a  negotiable  instrument  ia 
incomplete  and  revocable  until  delivery  of  the  instrument 
for  the  purpose  of  giving  effect  thereto.  As  between  imme- 
diate parties,  and  as  regards  a  remote  party  other  than  a 
holder  in  due  course,  the  delivery,  in  order  to  be  effectual, 
must  be  made  either  by  or  under  the  authority  of  the  party 
making,  drawing,  accepting  or  indorsing,  as  the  case  may 
be;  and  in  such  case  the  delivery  may  be  shown  to  have 
been  conditional  or  for  a  special  purpose  only,  and  not  for 
the  purpose  of  transferring  the  property  in  instrument.  But 
where  the  instrument  is  in  the  hands  of  a  holder  in  due 
course,  a  valid  delivery  thereof  by  all  parties  prior  to  him 
so  as  to  make  them  liable  to  him,  is  conclusively  presumed. 
And  where  the  instrument  is  no  longer  in  the  possession  of 
party  whose  signature  appears  thereon,  a  valid  and  inten- 
tional delivery  by  him  is  presumed  until  the  contrary  ia 
proved. 

Sec.  17.  Where  the  language  of  the  instrument  ia  am- 
biguous, or  there  are  omissions  therein  the  following  rules 
of  construction  apply: 

1,  Where  the  sum  payable  is  expressed  in  words  and  also 
in  figures  and  there  is  a  discrepancy  between  the  two,  the 
Eum  denoted  by  the  words  is  the  siun  payable;  but  if  the 


Ambmoan  Commercial  Law.         143 

words  are  ambiguous  or  uncertain,   reference  may  be  had 
to  the  figures  to  fix  the  amount. 

2.  Where  the  instrimient  provides  for  the  payment  of 
interest,  without  specifying  the  date  from  -which  interest 
is  to  rim,  the  interest  runs  from  the  date  of  the  instrument, 
and  if  the  instrument  is  undated,  from  the  issue  thereof. 

3.  Where  the  instrument  is  not  dated,  it  will  be  consid- 
ered to  be  dated  as  of  the  time  it  was  issued. 

4.  Where  there  is  conflict  between  the  written  and  printed 
provisions  of  the  instrument,  the  written  provisions  pre- 
vail. 

6.  Where  the  instrument  is  so  ambiguous  that  there  is 
doubt  whether  it  is  a  bill  or  a  note,  the  holder  may  treat 
it  as  either,  at  his  election. 

6.  Where  a  signature  is  so  placed  upon  the  instrument 
that  it  is  not  clear  in  what  capacity  the  person  making  the 
same  intended  to  sign,  he  is  to  be  deemed  an  indorser. 

7.  Where  an  instrument  containing  the  words  "I  prom- 
ise to  pay"  is  signed  by  two  or  more  persons,  they  are  deemed 
to  be  jointly  and  severally  liable  thereon. 

Sec.  18.  No  person  is  liable  on  the  instrument  whose 
signature  does  not  appear  thereon,  except  as  herein  other- 
wise expressly  provided.  But  one  who  signs  in  a  trade  or 
assumed  name  will  be  liable  to  the  same  extent  as  if  he  had 
signed  his  own  name. 

Sec.  19.  The  signature  of  any  party  may  be  made  by  a 
duly  authorized  agent.  No  particular  form  of  appointment 
is  necessary  for  this  purpose;  and  the  authority  of  the  agent 
may  be  established  as  in  other  cases  of  agency. 

Sec.  20.  Where  the  instrument  contains,  or  a  person  adds 
to  his  signature,  words  indicating  that  he  signs  for  or  on 
behalf  of  the  principal,  or  in  a  representative  capacity,  he 
is  not  liable  on  the  instrument  if  he  was  duly  authorized; 
but  the  mere  addition  of  words  describing  him  as  agent, 
or  as  filling  a  representative  character,  without  disclosing 
his  principal,  does  not  exempt  him  from  personal  liability. 


144  Negotiable  Papee. 

Sec.  21.  A  signature  by  "procuration"  operates  as  no- 
tice that  the  agent  has  but  limited  authority  to  sign,  and 
the  principal  is  bound  in  case  the  agent  in  so  signing  acted 
within  the  actual  limits  of  his  authority. 

Sec.  22.  The  indorsement  or  assignment  of  the  instru- 
ment by  a  corporation  or  by  an  infant  passes  the  property 
therein,  notwithstanding  that  from  want  of  capacity  the 
corporation  or  infant  may  incur  no  liability  thereon. 

Sec.  23.  Where  a  signature  is  forged  or  made  without 
authority  it  is  wholly  inoperative,  and  no  right  to  retain 
the  instrument  or  to  give  a  discharge  therefor  or  to  enforce 
payment  thereof  against  any  party  thereto,  can  be  acquired 
through  or  under  such  signature,  unless  the  party  against 
whom  it  is  sought  to  enforce  such  right  is  precluded  from 
setting  up  the  forgery  or  want  of  authority. 

ABTICLB    II. — CONSIDEBATrON. 

Sec.  24.  Every  negotiable  instrument  is  deemed  prima 
facie  to  have  been  issued  for  a  valuable  consideration,  and 
every  person  whose  signature  appears  thereon  to  have  be- 
come a  party  thereto  for  value. 

•ec.  25.  Value  is  any  consideration  sufficient  to  support 
a  simple  contract. 

2.  An  antecedent  or  pre-existing  debt  constitutes  value 
and  is  deemed  such,  whether  the  instrument  is  payable  on 
demand  or  at  a  future  time. 

Sec.  26.  Where  value  has  at  any  time  been  given  for  the 
instrument,  the  holder  is  deemed  a  holder  for  value  in 
respect  to  all  parties  who  became  such  prior  to  that  time. 

Sec.  27.  Whether  the  holder  has  a  lien  on  the  instru- 
ment, arising  either  from  contract  or  by  implication  of 
law,  he  is  deemed  a  holder  for  value  to  the  extent  of  his  lien. 

Sec.  28.  Absence  or  failure  of  consideration  is  a  matter 
ol  defense  as  against  any  person  not  a  holder  in  due  course. 


American  Commeecial  Law.         145 

and  partial  failure  of  consideration  is  a  defense  pro  tanto, 
whether  the  failure  is  an  ascertained  and  liquidated  amount 
or  otherwise. 

Sec.  29.  An  accommodation  party  is  one  who  has  signed 
the  instrument  as  maker,  drawer,  acceptor,  or  indorser,  for 
the  purpose  of  lending  his  name  to  some  other  person.  Such 
a  person  is  liable  on  the  instrument  to  a  holder  for  value, 
notwithstanding  such  holder  at  the  time  of  taking  the  instru- 
ment knew  him  to  be  only  an  accommodation  party. 

Abtiole  III. — ^Negotiation. 

Sec.  30.  An  instrument  is  negotiated  when  it  is  trans- 
ferred from  one  person  to  another  in  such  manner  as  to 
constitute  the  transferee  the  holder  thereof;  if  payable  to 
bearer,  it  is  negotiated  by  delivery;  if  payable  to  order,  it 
is  negotiated  by  the  indorsement  of  the  holder,  completed  by 
delivery. 

Sec.  31.  The  indorsement  must  be  written  on  the  inetrimient 
itself  or  upon  a  paper  attached  thereto.  The  signature  of 
the  indorser,  without  additional  words,  is  a  sufficient  indorse- 
ment. 

Sec.  32.  The  indorsement  must  be  an  indorsement  of  the 
entire  instrument.  An  indorsement  which  purports  to  trans- 
fer to  the  indorsee  a  part  only  of  the  amount  payable,  or 
which  purports  to  transfer  the  instrument  to  two  or  more 
indorsees  severally,  does  not  operate  as  a  negotiation  of  the 
instrument.  But  where  the  instrument  has  been  paid  in  part, 
it  may  be  indorsed  as  to  the  residue. 

Sec.  33.  An  indorsement  may  be  either  in  blank  or  spe- 
cial; and  it  may  also  be  either  restrictive  or  qualified,  or 
conditional. 

Sec.    34.     A   special    indorsement   specifies   the    person    to 
whom  or  to  whose  order  the  instrument  is  to  be  payable; 
and  the  indorsement  of  such  indorsee  is  necessary  to  the 
2  B— 10 


146  Negotiable  Paper. 

further  negotiation  of  the  instrument.  An  indorsement  in 
blank  specifies  no  indorsee,  and  an  instrument  so  indorsed 
is  payable  to  bearer,  and  may  be  negotiated  by  delivery. 

Sec.  35.  The  holder  may  convert  a  blank  indorsement  into 
a  special  indorsement  by  writing  over  the  signature  of  the 
indorser  in  blank  any  contract  consistent  with  the  character 
of  the  indorsement. 

Sec.  36.    An  indorsement  is  restrictive  which  either: 

1.  Prohibits  the  further  negotiation  of  the  instrument; 
or 

2.  Constitutes  the  indorsee  the  agent  of  the  indorser ;  or 

3.  Vests  the  title  in  the  indorsee  in  trust  for  or  to  the 
use  of  some  other  person.  But  the  mere  absence  of  words 
implying  power  to  negotiate  does  not  make  an  indorsement 
restrictive. 

Sec.  37.  A  restrictive  indorsement  confers  upon  the  in- 
dorsee the  right: 

1.  To  receive  payment  of  the  instrument. 

2.  To  bring  any  action  thereon  that  the  indorser  could 
bring. 

3.  To  transfer  his  rights  as  such  indorsee  where  the  form 
of  the  indorsement  authorizes  him  to  do  so. 

But  all  subsequent  indorsees  acquire  only  the  title  of  the 
first  indorsee  under  the  restrictive  indorsement. 

Sec.  38.  A  qualified  indorsement  constitutes  the  indorser 
a  mere  assignor  of  the  title  to  the  instrument.  It  may  be 
made  by  adding  to  the  indorser's  signature  the  words  "with- 
out recourse"  or  any  words  of  similar  import.  Such  an 
indorsement  does  not  impair  the  negotiable  character  of  the 
instrument. 

Sec.  39.  Where  an  indorsement  is  conditional,  a  party 
required  to  pay  the  instrument  may  disregard  the  condition, 
and  make  a  payment  to  the  indorsee  or  his  transferee, 
whether  the  condition  has  been  fulfilled  or  not.     But  any 


Ameeican  Commercial  Law.         147 

person  to  whom  an  instrument  so  indorsed  is  negotiated,  will 
hold  the  same,  or  the  proceeds  thereof,  subject  to  the  rights 
of  the  person  indorsing  conditionally. 

Sec.  40.  Where  an  instrument  originally  payable  to  or 
indorsed  specifically  to  bearer  is  subsequently  indorsed  spe- 
cially it  may  nevertheless  be  further  negotiated  by  delivery; 
but  the  person  indorsing  specially  is  liable  as  indorser  to  only 
such  holders  as  make  title  through  his  indorsement. 

Sec.  41.  Where  an  instrument  is  payable  to  the  order  of 
two  or  more  payees  or  indorsees  who  are  not  partners,  all 
must  indorse  unless  the  one  indorsing  has  authority  to  in- 
dorse  for   the   others. 

Sec.  42.  Where  an  instrument  is  drawn  or  indorsed  to  a 
person,  as  "Cashier"  or  other  fiscal  officer  of  a  bank  or  cor- 
poration, it  is  deemed  prima  facie  to  be  payable  to  the  bank 
or  corporation  of  which  he  is  such  oflScer;  and  may  be  nego- 
tiated by  either  the  indorsement  of  the  bank  or  corporation, 
or  the  indorsement  of  the  officer. 

Sec.  43.  Where  the  name  of  the  payee  or  indorsee  in 
wrongly  designated  or  misspelled,  he  may  indorse  the  instru- 
ment as  therein  described,  adding,  if  he  think  fit,  his  proper 
signature. 

Sec.  44.  Where  any  person  is  under  obligation  to  indorse 
in  a  representative  capacity,  he  may  indorse  in  such  terms 
as  to  negative  personal  liability. 

Sec.  45.  Except  where  an  indorsement  bears  date  after 
the  maturity  of  the  instrument,  every  negotiation  is  deemed 
prima  facie  to  have  been  effected  before  the  instrument  was 
overdue. 

Sec.  46.  Except  where  the  contrary  appears,  every  indorse- 
ment is  presumed  prima  facie  to  tave  been  made  at  the  place 
where  the  instrument  is  dated. 

Sec.  47.  An  instriiment  negotiable  in  its  origin  continues 
to  be  negotiable  until  it  has  been  respectively  indorsed  or 
discharge  by  payment  or  otherwise. 


14S  Negotiable  Paper. 

Sec.  48.  The  owner  may  at  any  time  strike  out  any  indorse- 
ment which  is  not  necessary  to  his  title.  The  indorser  whose 
indorsement  is  struck  out,  and  all  indorsers  subsequent  to 
him,  are  thereby  relieved  from  liability  on  the  instrument. 

Sec.  49.  Where  the  holder  of  an  instrument  payable  to 
his  order  transfers  it  for  value  without  indorsing  it,  the 
transferer  vests  in  the  transferee  such  title  as  the  transferee 
had  therein,  and  the  transferee  acquires,  in  addition,  the 
right  to  have  the  indorsement  of  the  transferer.  But  for  the 
purpose  of  determining  whether  the  transferee  is  a  holder  in 
due  course,  the  negotiation  takes  effect  as  of  the  time  when 
the  indorsement  is  actually  made. 

Sec.  50.  Where  an  instrument  is  negotiated  back  to  a  prior 
party,  such  party  may,  subject  to  the  provisions  of  this  Act, 
reissue  and  further  negotiate  the  same,  but  he  is  not  entitled 
to  enforce  payment  thereof  against  any  intervening  party  to 
whom  he  was  personally  liable. 


Abtclb!  IV. — ^Rights  or  the  Holder. 

Sec  61.  The  holder  of  a  negotiable  instrument  may  sue 
thereon  in  his  own  name  and  payment  to  him  in  due  course 
discharges  the  instrument. 

Sec.  52.  A  holder  in  due  course  is  a  holder  who  has  taken 
the  instrument  under  the  following  conditions: 

1.  That  it  is  complete  and  regular  upon  its  face. 

2.  That  he  became  the  holder  of  it  before  it  was  overdue, 
and  without  notice  that  it  has  been  previously  dishonored,  if 
■uch  was  the  fact. 

3.  That  he  took  it  in  good  faith  and  for  value. 

4.  That  at  the  time  it  was  negotiated  to  him  he  had  no 
notice  of  any  infirmity  in  the  instrument  or  defect  in  the  title 
of  the  person  negotiating  it. 


American  Commercial  Law.         149 

Sec.  53.  Where  an  instrument  payable  on  demand  is  nego- 
tiated an  unreasonable  length  of  time  after  its  issue,  th« 
holder  is  not  deemed  a  holder  in  due  course. 

Sec.  54.  WBiere  the  transferee  receives  notice  of  any  in- 
firmity in  the  instrument  or  defect  in  the  title  of  the  person 
negotiating  the  same  before  he  has  paid  the  full  amount 
agreed  to  be  paid  therefor,  he  will  be  deemed  a  holder  in  due 
course  only  to  the  extent  of  the  amount  theretofor  paid  by 
him. 

Sec.  55.  The  title  of  a  person  who  negotiates  an  instru- 
ment is  defective  within  the  meaning  of  this  Act  when  he 
obtained  the  instrument,  or  any  signature  thereto,  by  fraud, 
duress,  or  force  and  fear,  or  other  unlawful  means,  or  for  an 
illegal  consideration  or  when  he  negotiates  it  in  breach  of 
faith,  or  under  such  circumstances  as  amoimt  to  a  fraud. 

Sec.  56.  To  constitute  notice  of  an  infirmity  in  the  in- 
strument or  defect  in  the  title  of  the  person  negotiating  th« 
same,  the  person  to  whom  it  is  negotiated  must  have  had 
actual  knowledge  of  the  infirmity  or  defect,  or  knowledge  of 
such  facts  that  his  action  in  taking  the  instrument  amounted 
to  bad  faith. 

Sec.  57.  A  holder  in  due  course  holds  the  instrument  free 
from  any  defect  of  title  or  of  prior  parties,  and  free  from 
defenses  available  to  prior  parties  among  themselves  and  may 
enforce  payment  of  the  instrument  for  the  full  amount  thereof 
against  all  parties  liable  thereon. 

Sec.  58.  In  the  hands  of  any  holder  other  than  a  holder 
in  due  course,  a  negotiable  instrument  is  subject  to  the  same 
defenses  as  if  it  were  non-negotiable.  But  the  holder  who 
derives  his  title  through  a  holder  in  due  course,  and  who 
is  not  himself  a  party  to  any  fraud  or  duress  or  illegality 
affecting  the  instrument,  has  all  the  rights  of  such  former 
holder  in  respect  to  all  parties  prior  to  the  latter. 

Sec.  69.  Every  holder  is  deemed  prima  facie  to  be  a  holder 
in  due  course;  but  when  it  is  shown  that  the  title  of  any 


150  Negotiable  Paper. 

person  who  has  negotiated  the  instrument  was  defective,  the 
burden  is  on  the  holder  to  prove  that  he  or  some  person 
under  whom  he  claims  acquired  the  title  as  a  holder  in  due 
course.  But  the  last  mentioned  rule  does  not  apply  in  favor 
of  a  party  who  became  bound  on  the  instrument  prior  to  the 
acquisition  of  such  defective  title. 

AETICtE    V. — LlABEUTT    OF    PabTIES. 

Sec.  60.  The  maker  of  a  negotiable  instrument  by  making 
it  engages  that  he  will  pay  it  according  to  its  tenor,  and 
admits  the  existence  of  the  payee  and  his  then  capacity  to 
indorse. 

Sec.  61.  The  drawer  by  drawing  the  instrument  admits 
the  existence  of  the  payee  and  his  then  capacity  to  indorse, 
and  engages  that  on  due  presentment  the  instrument  will  he 
accepted  or  paid,  or  both,  according  to  its  tenor,  and  that  if 
it  be  dishonored,  and  the  necessary  proceedings  on  dishonor 
be  duly  taken,  he  will  pay  the  amount  thereof  to  the  holder, 
or  to  any  indorser  who  may  be  compelled  to  pay  it.  But  the 
drawer  may  insert  in  the  instrument  an  express  stipulation 
negativing  or  limiting  his  own  liability  to  the  holder. 

Sec.  62.  The  acceptor  by  accepting  the  instrument  engages 
that  he  will  pay  it  according  to  the  tenor  of  his  acceptance 
and  admits: 

1.  The  existence  of  the  drawer,  the  genuineness  of  his 
signature,  and  his  capacity  and  authority  to  draw  the  instru- 
ment; and 

2.  The  existence  of  the  payee  and  his  then  capacity  to 
indorse. 

Sec.  63.  A  person  placing  his  signature  upon  an  instru- 
ment otherwise  than  as  maker,  drawer  or  acceptor  is  deemed 
to  be  an  indorser,  unless  he  clearly  indicated  by  appropriat« 
words  his  intention  to  be  bound  in  some  other  capacity. 

Sec.  64.  Where  a  person,  not  otherwise  a  party  to  an 
instnunent,   placeg   thereon   his   signature   in   blank   befort 


American  Commercial  Law.         151 

delivery,   be   is   liable   as    indorser   in   accordance   witb   tbe 
following  rules: 

1.  If  the  instrument  is  payable  to  the  order  of  a  third 
person  he  is  liable  to  the  payee  and  to  all  subsequent  parties. 

2.  If  the  instrument  is  payable  to  the  order  of  the  maker 
or  drawer,  or  is  payable  to  dearer,  he  is  liable  to  all  parties 
subsequent  to  the  maker  or  drawer. 

3.  If  he  signs  for  the  accommodation  of  the  payee,  he  is 
liable  to  all  parties  subsequent  to  the  payee. 

Sec.  65.  Every  person  negotiating  an  instrument  by  de- 
livery or  by  a  qualified  indorsement,  warrants: 

1.  That  the  instrument  is  genuine  and  in  all  respects 
what  it  purports  to  be. 

2.  That  he  has  a  good  title  to  it. 

3.  That  all  prior  parties  had  capacity  to  contract. 

4.  That  he  has  no  knowledge  of  any  fact  which  would 
impair  the  validity  of  the  instrument,  or  render  it  valueless. 

But  when  the  negotiation  is  by  delivery  only,  the  warranty 
extends  in  favor  of  no  holder  other  than  the  immediate 
transferee. 

The  provisions  of  subdivision  three  of  this  section  do  not 
apply  to  persons  negotiating  public  or  corporate  securities, 
other  than  bills  and  notes. 

Sec.  66.  Every  indorser  not  an  accommodating  party  who 
indorses  without  qualification,  warrants  to  all  subsequent 
holders  in  due  course: 

1.  The  matters  and  things  mentioned  in  subdivision  one, 
two,  three  and  four  of  the  next  preceding  section;  and 

2.  That  the  instrument  is  at  the  time  of  his  indorsement 
valid  and  subsisting. 

And,  in  addition,  every  indorser  engages  that  on  due 
presentment,  it  shall  he  accepted  or  paid,  or  both,  as  the 
case  may  be,  according  to  its  tenor,  and  that  if  it  be  dis- 
honored and  the  necessary  proceedings  on  dishonor  be  duly 


152  Negotiable  Paper. 

taken  he  "will  pay  the  amount  thereof  to  the  holder,  or  to  any 
subsequent  indorser  who  may  be  compelled  to  pay  it. 

Sec.  67.  Where  a  person  places  his  indorsement  on  an 
instrument  negotiable  by  delivery  he  incurs  all  the  liabilities 
of  an  indorser. 

Sec.  68.  As  respects  one  another,  indorsers  are  liable 
prima  facie  in  the  order  in  which  they  indorse,  but  evidence 
is  admissible  to  show  that  as  between  or  among  themselves 
they  have  agreed  otherwise.  Joint  payees  or  joint  indorsees 
who  indorse  are  deemed  to  indorse  jointly  and  severally. 

Sec.  69.  Where  a  broker  or  other  agent  negotiates  an 
instrument  without  indorsement,  he  incurs  all  the  liabilities 
prescribed  by  section  sixty-five  of  this  Act,  unless  he  dis- 
closes the  name  of  his  principal,  and  the  fact  that  he  is  acting 
only  as  agent. 

Aetcle  VI. — Presentment  fob  Payment. 

Sec.  70.  Presentment  for  payment  is  not  necessary  in  order 
to  charge  the  person  primarily  liable  on  the  instrument  but 
if  the  instrument  is,  by  its  terms,  payable  at  a  special  place 
and  he  is  able  and  willing  to  pay  it  there  at  maturity,  such 
ability  and  willingness  are  equivelent  to  a  tender  of  payment 
upon  his  part.  But  except  as  herein  otherwise  provided, 
presentment  for  payment  is  necessary  in  order  to  charge 
the  drawer  and  indorsers. 

Sec.  71.  Where  the  instrument  is  not  payable  on  demand, 
presentment  must  be  made  on  the  day  it  falls  due.  Where 
it  is  payable  on  demand,  presentment  must  be  made  within 
a  reasonable  time  after  its  issue,  except  that  in  case  of  a  bill 
of  exchange,  presentment  for  payment  will  be  sufficient  if 
made  within  a  reasonable  time  after  the  last  negotiation 
thereof^ 

Sec.  72.  Presentment  for  payment,  to  be  sufficient,  must 
be  made: 


American  Commercial  Law.         153 

1.  By  fhe  holder,  or  by  some  person  authorized  to  receive 
payment  on  his  behalf. 

2.  At  a  reasonable  hour  on  a  business  day. 

3.  At  a  proper  place  as  herein  defined. 

4.  To  the  person  primarily  liable  on  the  instrument,  or 
if  he  is  absent  or  inaccessible,  to  any  person  found  at  the 
place  where  the  presentment  is  made. 

Sec.  73.  Presentment  for  payment  is  made  at  the  proper 
place : 

1.  Where  a  place  of  payment  is  specified  in  the  instrument 
and  it  is  there  presented. 

2.  Where  no  place  of  payment  is  specified  and  the  ad- 
dress of  the  person  to  make  the  payment  is  given  in  the  in- 
strument and   it  is  there  presented. 

3.  Where  no  place  of  payment  is  specified  and  no  address 
is  given  and  the  instrument  is  presented  at  the  usual  place 
of  business  or  residence  of  the  person  to  make  payment. 

4.  In  any  other  case,  if  presented  to  the  person  to  make 
payment  wherever  he  can  be  found,  or  if  presented  at  his  last 
known  place  of  business  or  residence. 

Sec.  74.  The  instrument  must  be  exhibited  to  the  person 
from  whom  payment  is  demanded,  and  when  it  is  paid  must 
be  delivered  up  to  the  party  paying  it. 

Sec.  75.  Where  the  instrument  is  payable  at  a  bank,  pre- 
sentment for  payment  must  be  made  during  banking  hours, 
unless  the  person  to  make  payment  has  no  funds  there  to 
meet  it  at  any  time  during  the  day,  in  which  case  presentment 
at  any  hour  before  the  bank  is  closed  on  that  day  is  suf- 
ficient. 

Sec.  76.  Where  the  person  primarily  liable  on  the  instru- 
ment is  dead,  and  no  place  of  payment  is  specified,  pre- 
sentment for  payment  must  be  made  to  his  personal  repre- 
sentative if  such  there  be,  and  if  with  exercise  of  reasonable 
diligence,  he  can  be  found. 


154  Negotiable  Papee. 

Sec.  77.  Where  the  persons  primarilj  liable  on.  the  instru- 
ment are  liable  as  partners,  and  no  place  of  payment  is 
specified,  presentment  for  payment  may  be  made  to  any  one 
of  them,  even  though  there  has  been  a  dissolution  of  the 
firm. 

Sec.  78.  Where  there  are  several  persons,  not  partners, 
primarily  liable  on  the  instrument,  and  no  place  of  payment 
is  specified,  presentment  must  be  made  to  them  all. 

Sec.  79.  Presentment  for  payment  is  not  required  in  order 
to  charge  the  drawer  where  he  has  no  right  to  expect  or 
require  that  the  drawee  or  acceptor  will  pay  the  instrument. 

Sec.  80.  Presentment  for  payment  is  not  required  to  charge 
an  indorser  where  the  instrument  was  made  or  accepted  for 
his  accomodation  and  he  has  no  reason  to  expect  the  instru- 
ment will  be  paid  if  presented. 

Sec.  81.  Delay  in  making  presentment  for  payment  is  ex- 
cused when  the  delay  is  caused  by  circumstances  beyond  the 
control  of  the  holder,  and  not  imputable  to  his  default,  mis- 
conduct or  negligence.  When  the  cause  of  delay  ceases  to 
operate,  presentment  must  be  made  with  reasonable  diligence. 

Sec.  82.  Presentment  for  payment  is  dispensed  with: 

1.  When  after  the  exercise  of  reasonable  diligence  pre- 
sentment as  required  by  this  Act  can  not  be  made. 

2.  Where  the  drawee  is  a  fictitious  person. 

3.  By  waiver  of  presentment,  express  or  implied. 

Sec.  83.  The  instrument  is  dishonored  by  non-payment 
•when: 

1.  It  is  duly  presented  for  payment  and  payment  is  re- 
fused or  can  not  be  obtained;  or 

2.  Presentment  is  excused  and  the  instrument  is  overdue 
and  unpaid. 

Sec  84.  Subject  to  the  provisions  of  this  Act,  when  the 
instrument  is  dishonored  by  non-payment,  an  immediate  right 


American  Commercial  Law.         155 

of  recourse  to  aU  parties  secondarily  liable  thereon  accrues 

to  the  holder. 

Sec.  85.  Every  negotiable  instrument  is  payable  at  the  time 
fixed  therein  without  grace.  When  a  day  of  maturity  falls 
on  Sunday,  or  a  holiday,  the  instrument  is  payabl*  on  the 
next  succeeding  business  day.  Instruments  falling  due  on 
Saturday  are  to  be  presented  for  payment  on  the  next  suc- 
ceeding business  day,  except  that  instruments  payable  on 
demand  may,  at  the  option  of  the  holder,  be  presented  for 
payment  before  12:00  o'clock  noon  on  Saturday,  when  that 
entire  day  is  not  a  holiday. 

Sec.  86.  Where  the  instrument  is  payable  at  a  fixed  period 
after  date,  after  sight,  or  after  the  happening  of  a  specified 
event,  the  time  of  payment  is  determined  by  excluding  ths 
day  from  which  the  time  ia  to  begin  to  run,  and  by  in- 
cluding the  date  of  payment. 

Sec.  87.  Where  the  instrument  ia  made  payable  at  a  bank 
it  is  equivalent  to  an  order  to  the  bank  to  pay  the  same 
for  the  account  of  the  principal  debtor  thereon.  (This 
section  omitted  in  the  Illinois  law.) 

Sec.  88.  Payment  ia  made  in  due  course  when  it  is  made 
at  or  after  maturity  of  the  instrument  to  the  holder  thereof 
in  good  faith  and  without  notice  that  his  title  is  defective. 

Abticub   VII. — Notice    of   Dishonob. 

Sec.  89.  Except  as  herein  otherwise  provided,  when  a  ne- 
gotiable instrument  has  been  dishonored  by  non-acceptance 
or  non-payment,  notice  of  dishonor  must  be  given  to  the 
drawer  and  to  each  indorser,  and  any  drawer  or  indorser 
to  whom  such  notice  is  not  given  is  dificharged. 

Sec.  90.  The  notice  may  be  given  by  or  on  behalf  of  the 
holder,  or  by  or  on  behalf  of  any  party  to  the  instrument 
who  might  be  compelled  to  pay  it  to  the  holder,  and  who. 


156  Negotiable  Paper. 

upon  taking  it  up,  would  have  a  right  to  reimbursement 
from  the  party  to  whom  the  notice  is  given. 

Sec.  91.  Notice  of  dishonor  may  be  given  by  an  agent, 
either  in  his  own  name  or  in  the  name  of  any  party  entitled 
to  give  notice,  whether  that  party  be  his  principal  or  not. 

Sec.  92.  Where  notice  is  given  by  or  on  behalf  of  the  holder, 
it  inures  for  the  benefit  of  all  subsequent  holders  and  all 
prior  parties  who  have  a  right  of  recourse  against  the  party 
to  whom  it  is  given. 

Sec.  93.  Where  notice  is  given  by  or  on  behalf  of  a  party 
entitled  to  give  notice,  it  inures  for  the  benefit  of  the  holder 
and  all  parties  subsequent  to  the  party  to  whom  notice  is 
given. 

Sec.  94.  Where  the  instrument  has  been  dishonored  in  the 
hands  of  an  agent,  he  may  either  himself  give  notice  to  the 
parties  liable  thereon  or  he  may  give  notice  to  his  principal. 
If  he  gives  notice  to  his  principal,  he  must  do  so  within  the 
same  time  as  if  he  were  the  holder  and  the  principal  upon  the 
receipt  of  such  notice,  has  himself  the  same  time  for 
giving  notice  as  if  the  agent  had  been  an  independent 
holder. 

Sec.  95.  A  written  notice  need  not  be  signed,  and  an 
insufficient  written  notice  may  be  supplemented  and  validated 
by  verbal  communication.  A  misdescription  of  the  instrument 
does  not  vitiate  unless  the  party  to  whom  the  notice  is  given 
is  in  fact  misled  thereby. 

Sec.  96.  The  notice  may  be  in  writing  or  merely  oral  and 
may  be  given  in  any  terms  which  sufficiently  identify  the 
instrument  and  indicate  that  it  has  been  dishonored  by 
non-acceptance  or  non-payment.  It  may  in  all  cases  be 
given  by  delivering  it  personally  or  through  the  mails. 

Sec.  97.  Notice  of  dishonor  may  be  given  either  to  the 
party  himself  or  to  his  agent  in  that  behalf. 


American  Commeecjial  Law.         157 

Sec.  98.  Where  any  party  is  dead,  and  his  death  is  known 
to  the  party  giving  notice,  the  notice  must  be  given  to  a 
personal  representative,  if  there  be  one,  and  if  with  reasonable 
diligence  he  can  be  found.  If  there  be  no  personal  re- 
presentative, notice  may  be  sent  to  the  last  residence  or 
last  place  of  business  of  the  deceased. 

Sec.  99.  Where  the  parties  to  be  notified  are  partners,  no- 
tice to  any  one  partner  is  notice  to  the  firm,  even  though 
there  has  been  a  dissolution. 

Sec.  100.  Notice  to  joint  parties  who  are  not  partners 
must  be  given  to  each  of  them,  unless  one  of  them  has 
authority  to  receive  such  notice  for  the  others. 

Sec.  101.  Where  a  party  has  been  adjudged  a  bankrupt 
or  an  insolvent,  or  has  made  an  assignment  for  the  benefit 
of  his  creditors,  notice  may  be  given  either  to  the  party 
himself  or  to  his  trustee  or  assignee. 

Sec.  102.  Notice  may  be  given  as  soon  as  the  instrument 
is  dishonored,  and  unless  delay  is  excused  as  hereinafter 
provided,  must  be  given  within  the  times  fixed  by  this 
Act. 

Sec.  103.  Where  the  person  giving  and  the  person  to  re- 
ceive notice  reside  in  same  place,  notice  must  be  given  within 
the   following  times: 

1.  If  given  at  the  place  of  business  of  the  person  to 
receive  notice,  it  must  be  given  before  the  close  of  business 
hours  on  the  day  following. 

2.  If  given  at  his  residence,  it  must  be  given  before  the 
usual  hours  of  rest  on  the  day  following. 

3.  If  sent  by  mail,  it  must  be  deposited  in  the  postoffice 
in  time  to  reach  him  in  the  usual  course  on  the  day  following. 

Sec.  104.  Where  the  person  giving  and  the  person  to  receive 
notice  reside  in  different  places,  the  notice  must  be  given 
within  the  following  times: 


158  Negotiable  Papee. 

1.  If  sent  by  mail,  it  must  be  deposited  in  tbe  postoflSce 
in  time  to  go  by  mail  the  day  following  the  day  of  dishonor, 
or  if  there  be  no  mail  at  a  convenient  hour  on  that  day 
by  the  next  mail  thereafter. 

2.  If  given  otherwise  than  through  the  postoffice,  then  with- 
in the  time  that  notice  would  have  been  received  in  due  course 
of  mail,  if  it  had  been  deposited  in  the  postoffice  within  the 
time  specified  in  the  last  subdivision. 

Sec.  105.  Where  notice  of  dishonor  is  duly  addressed  and 
deposited  in  the  postoffice,  the  sender  is  deemed  to  have 
given  due  notice,  notwithstanding  any  miscarriage  in  the 
mails. 

Sec.  106.  Notice  is  deemed  to  have  been  deposited  in  the 
postoffice  when  deposited  in  any  branch  postoffice  or  in  any 
letter  box  imder  the  control  of  the  postoffice  department. 

Sec.  107.  Where  a  party  receives  notice  of  dishonor,  he 
has,  after  the  receipt  of  such  notice,  the  same  time  for  giving 
notice  to  antecedent  parties  that  the  holder  has  after  dis- 
honor. 

Sec.  108.  Where  a  party  has  added  an  address  to  his 
signature,  notice  of  dishonor  must  be  sent  to  that  address; 
but  if  he  has  not  given  such  address,  then  the  notice  must 
be  sent  as  follows: 

1.  Either  to  the  postoffice  nearest  to  his  place  of  residence, 
or  to  the  postoffice  where  he  is  accustomed  to  receive  his 
letters;  or, 

2.  If  he  lives  in  one  place  and  has  his  place  of  business 
in  another,  notice  may  be  sent  to  either  place;  or, 

3.  If  he  is  sojourning  in  another  place,  notice  may  be 
sent  to  the  place  where  he  is  sojourning. 

But  where  the  notice  is  actually  received  by  the  party 
within  the  time  specified  in  this  Act,  it  will  be  sufficient 
though  not  sent  in  accordance  with  the  requirements  of  this 
section. 


American  Commercial  Law.         160 

Sec.  109.  Notice  of  dishonor  may  be  waived,  either  before 
the  time  of  giving  notice  has  arrived,  or  after  the  omission 
to  give  due  notice,  and  the  waiver  may  be  express  or  im- 
plied. 

Sec.  110.  Where  the  waiver  is  embodied  in  the  instrument 
itself,  it  is  binding  upon  all  parties;  but  where  it  is  written 
above  the  signature  of  an  indorser,  it  binds  him  only. 

Sec.  111.  A  waiver  of  protest,  whether  in  the  case  of  a 
foreign  bill  of  exchange  or  other  negotiable  instrument,  ia 
deemed  to  be  a  waiver  not  only  of  a  formal  protest,  but  also 
of  a  presentment  and  notice  of  dishonor. 

Sec.  112.  Notice  of  dishonor  is  dispensed  with  when  after 
the  exercise  of  reasonable  diligence,  it  cannot  be  given 
to  or  does  not  reach  the  parties  sought  to  be  charged. 

Sec.  113.  Delay  in  giving  notice  of  dishonor  is  excused  when 
the  delay  ia  caused  by  circumstances  beyond  the  control  of 
the  holder  and  not  imputable  to  his  default,  misconduct  or 
negligence.  When  the  cause  of  delay  ceases  to  operate 
notice  must  be  given  with  reasonable  diligence. 

Sec.  114.  Notice  of  dishonor  is  not  required  to  be  given 
to  the  drawer  in  either  of  the  following  cases: 

1.  Where  the  drawer  and  drawee  are  the   same  person. 

2.  Where  the  drawee  is  a  fictitious  person  or  a  person 
not   having   capacity   to   contract. 

3.  Where  the  drawer  is  the  person  to  whom  the  instrument 
is  presented  for  payment. 

4.  Where  the  drawer  has  no  right  to  expect  or  require 
that  the  drawee  or  acceptor  will  honor  the  instrument. 

5.  Where  the  drawer  has  countermanded  payment. 

See.  115.  Notice  of  dishonor  is  not  required  to  be  given 
to  an  indorser  in  either  of  the  following  cases  i 

1.  Where  the  drawee  is  a  fictitious  person  or  a  person 
not  having  capacity  to  contract  and  the  indorser  was  aware 
ol  the  fact  at  the  time  he  indorsed  the  instrument. 


160  Negotiable  Paper. 

2.  Where  the  indorser  is  the  person  to  whom  the  instrument 
is  presented  for  payment. 

3.  Where  the  instriiment  was  made  or  accepted  for  his 
accommodation. 

Sec.  116.  Where  due  notice  of  dishonor  by  non-acceptance 
has  been  given,  notice  of  a  subsequent  dishonor  by  non- 
payment is  not  necessary,  unless  in  the  meantime  the  in- 
strument has  been  accepted. 

Sec.  117.  An  omission  to  give  notice  of  dishonor  by  non- 
acceptance  does  not  prejudice  the  rights  of  a  holder  in  due 
course  subsequent  to  the  omission. 

Sec.  118.  Where  any  negotiable  instrument  has  been  dis- 
honored it  may  be  protested  for  non-acceptance  or  non- 
payment, as  the  case  may  be,  but  protest  is  not  required 
except  in  the  case  of  foreign  bills  of  exchange. 

ABTICLE     VIII. — DiSCHABGE     OF     NEGOTIABLE     INSTBUMENTS. 

Sec.  119.     A  negotiable  instrument  is  discharged: 

1.  By  payment  in  due  course  by  or  on  behalf  of  the 
principal  debtor. 

2.  By  payment  in  due  course  by  the  party  accommodated, 
where  the  instrument  is  made  or  accepted  for  accommodation. 

3.  By  the  intentional  cancellation  thereof  by  the  holder. 

4.  By  any  other  act  which  will  discharge  a  simple  contract 
for  the  payment  of  money. 

6.  When  the  principal  debtor  becomes  the  holder  of  the 
instrument  at  or  after  maturity  in  his  own  right. 

Sec.  120.  A  person  secondarily  liable  on  the  instrument 
is  discharged: 

1.  By  an  act  which  discharges  the  instrument. 

2.  By  the  intentional  cancellation  of  his  signature  by  the 
holder. 

3.  By  the  discharge  of  a  prior  party. 

4.  By  a  valid  tender  of  payment  made  by  a  prior  party. 


iA^MEBICAN  COMMBBOIAL  LAW.  161 

6.  By  a  release  of  the  principal  debtor,  unless  the  holder's 
right  of  recourse  against  the  party  secondarily  liable  is 
expressly  reserved,  or  unless  the  principal  debtor  be  an  ac- 
commodating party, 

6.  By  any  agreement  binding  upon  the  holder  to  extend 
the  time  of  payment,  or  to  postpone  the  holder's  right 
to  enforce  the  instrument,  unless  made  with  the  assent  of  the 
party  secondarily  liable,  or  unless  the  right  of  recourse 
against  such  party  is  expressly  reserved. 

Sec.  121.  Where  the  instrument  is  paid  by  a  party  second- 
arily liable  thereon,  it  is  not  discharged;  but  the  party 
so  paying  it  is  remitted  to  his  former  rights  as  regards  all 
prior  parties,  and  he  may  strike  out  his  own  and  all  sub- 
sequent indorsements,  and  again  negotiate  the  instrument, 
except: 

1.  Where  it  is  payable  to  the  order  of  a  third  person 
and  has  been  paid  by  the  drawer;  and, 

2.  Where  it  was  made  or  accepted  for  accommodation, 
and  has  been  paid  by  the  party  accommodated. 

Sec.  122.  The  holder  may  expressly  renounce  his  right 
against  any  party  to  the  instrument  before,  at,  or  after  its 
maturity.  An  absolute  and  unconditional  renunciation  of 
his  rights  against  the  principal  debtor  made  at  or  after  the 
maturity  of  the  instrument,  discharges  the  instrument. 
But  a  renunciation  does  not  affect  the  rights  of  a  holder 
in  due  course  without  notice.  A  renunciation  must  be  in 
writing,  unless  the  instrument  is  delivered  up  to  the  person 
primarily  liable  thereon. 

Sec.  123.  A  cancellation  made  unintentionally,  or  under  a 
mistake,  or  without  the  authority  of  the  holder,  is  inopera- 
tive; but  where  an  instrument  or  any  signature  thereon  ap- 
pears to  have  been  cajicelled,  the  burden  of  proof  lies  on  tht 
party  who  alleges  that  the  cancellation  was  made  unin- 
tentionally, or  under  a  mistake  or  without  authority. 

2  B— 11 


162  NbgotiabIaB  Paper. 

Sec.  124.  Where  a  negotiable  instrument  is*  materially 
altered  by  the  holder  without  the  absent  of  all  parties  liable 
thereon,  it  is  avoided  except  as  against  a  party  who  has 
himself  made,  authorized  or  assented  to  the  alteration  and 
subsequent  indorsers. 

But  when  an  instrument  has  been  materially  altered  and 
is  in  the  hands  of  a  holder  in  due  course,  not  a  party  to 
the  alteration,  he  may  enforce  payment  thereof  according  to 
its  original  tenor. 

Sec.    125.    Any   alteration   which   changes: 

1.  The  date. 

2.  The  sum  payable,  either  for  principal  or  interest. 

3.  The  time  or  place  of  payment. 

4.  The  number  and  the  relations  of  the  parties. 

6.  The  medium  or  currency  in  which  payment  is  to  be 
made. 

Or  which  adds  a  place  of  payment  where  no  place  of 
payment  is  specified,  or  any  other  change  or  addition  which 
alters  the  effect  of  the  instrument  in  any  respect,  is  a 
material  alteration. 


Tms  II. — Bnxs  of  Exohancob. 

ABTICLE    I. — FOBM    AND    iNTESPEETATIOir. 

Sec.  126.  A  bill  of  exchange  is  an  unconditional  order  in 
writing  addressed  by  one  person  to  another,  signed  by  the 
person  giving  it,  requiring  the  person  to  whom  it  is  ad- 
dressed to  pay  on  demand,  or  at  a  fixed  or  determinable 
further  time,  a  sum  certain  in  money  to  order  or  to  bearer. 

Sec.  127.  A  bill  itself  does  not  operate  as  an  assignment 
of  the  funds  in  the  hands  of  the  drawee  available  for  the 
payment  thereof,  and  the  drawee  is  not  liable  on  the  bill  un- 
less and  until  he  accepts  the  same. 


American  Commeecial  Law.         163 

Sec.  128.  A  bill  may  be  addressed  to  two  or  more  drawee* 
jointly,  whether  they  are  partners  or  not;  but  not  to  two 
or  more  drawees  in  the  alternative  or  in  succession. 

Sec.  129.  An  inland  bill  of  exchange  is  a  bill  which  is, 
or  on  its  face  purports  to  be,  both  drawn  and  payable  within 
this  State.  Any  other  bill  is  a  foreign  bill.  Unless  the 
contrary  appears  on  the  face  of  the  bill  the  holder  may 
treat  it  as  an  inland  bill. 

Sec.  130.  Where  in  a  bill  drawer  and  drawee  are  the  same 
person,  or  where  the  drawee  is  a  fictitious  person,  or  a 
person  not  having  capacity  to  contract,  the  holder  may  treat 
the  instrument  at  his  option,  either  as  a  bill  of  exchange  or 
a  promissory  note. 

Sec.  131.  The  drawer  of  a  bill  and  any  indorser  may  insert 
thereon  the  name  of  a  person  to  whom  the  holder  may 
resort  in  case  of  need;  that  is  to  say,  in  case  the  bill  is 
dishonored  by  non-acceptance  or  non-payment.  Such  person 
is  called  the  referee  in  case  of  need.  It  is  the  option  of  the 
holder  to  resort  to  the  referee  in  case  of  need,  or  not,  as 
he  may  see  fit. 

AStiaVB   II. — ^ACCEPTAITCB. 

Sec.  132.  The  acceptance  of  a  bill  is  the  Bigniflcation  by 
the  drawee  of  his  assent  to  the  order  of  the  drawer.  The 
acceptance  must  be  in  writing  and  signed  by  the  drawee. 
It  must  not  express  that  the  drawee  will  perform  his  promise 
by  any  other  means  than  the  payment  of  money. 

Sec.  133.  The  holder  of  a  bill  presenting  the  same  for 
acceptance  may  require  that  the  acceptance  be  written  on 
the  bill,  and  if  such  request  is  refused  may  treat  the  bill 
as  dishonored. 

Sec.  134.  Where  an  acceptance  is  written  on  a  paper  other 
than  the  bill  itself,  it  does  not  bind  the  acceptor  except 


164  Negotiable  Paper. 

in  favor  of  a  person  who,  on  the  faith  thereof,  receives  the 
bill  for  value. 

Sec.  135.  An  unconditional  promise  in  writing  to  accept 
a  bill  before  or  after  it  is  drawn  is  deemed  an  actual  ac- 
ceptance in  favor  of  every  person  who,  upon  the  faith  thereof, 
receives  the  bill  for  value. 

Sec.  136.  The  drawee  is  allowed  twenty-four  hours  after 
presentment  in  which  to  decide  whether  or  not  he  will  accept 
the  bill;  but  the  acceptance,  if  given,  dates  as  the  day  of 
presentation. 

Sec  137.  Where  a  drawee  to  whom  a  bill  is  delivered 
for  acceptance  destroys  the  same  or  refuses  within  twenty- 
four  hours  after  such  delivery,  or  within  such  other  period 
as  the  holder  may  allow,  to  return  the  bill  accepted  or 
non-accepted  to  the  holder,  he  will  be  deemed  to  have 
accepted  the  same. 

Sec.  138^  A  bill  may  be  accepted  before  it  has  been  signed 
by  the  drawer,  or  while  otherwise  incomplete,  or  when  it  is 
overdue,  or  after  it  has  been  dishonored  by  a  previous 
refusal  to  accept,  or  by  non-payment.  But  when  a  bill  payable 
after  sight  is  dishonored  by  non-acceptance  and  the 
drawee  subsequently  accepts  it,  the  holder,  in  the  absence  of 
any  different  agreement,  is  entitled  to  have  the  bill  payable 
accepted  as  of  the  date  of  the  first  presentment. 

Sec.  139.  An  acceptance  is  either  general  or  qualified. 
A  general  acceptance  assents  without  qualification  to  the 
order  of  the  drawer.  A  qualified  acceptance  in  exprees 
terms  varies  the  effect  of  the  bill  as  drawn. 

Sec.  140.  An  acceptance  to  pay  at  a  particular  place  is 
a  general  acceptance  imless  it  expressly  states  that  the 
bill  it  to  be  paid  there  only,  and  not  elsewhere. 

Sec.  141.    An  acceptance  is  qualified  which  is: 

1,  Conditional;  that  is  to  say,  which  makes  payment  by 

the  acceptor  dependent  on  the   fullfillment  of  a  condition 

therein  stated. 


Ambbican  Commercial  Law.         165 

2.  Partial;  that  is  to  say,  an  acceptance  to  pay  part  only 
of  the  amount  for  which  the  bill  is  drawn. 

3.  Local;  that  is  to  say,  an  acceptance  to  pay  only  at  a 
particular  place. 

4.  Qualified  as  to  time. 

5.  The  acceptance  of  some  one  or  more  of  the  drawees 
but  not  of  all. 

Sec.  142.  The  holder  may  refuse  to  take  a  qualified  accept- 
ance, and  if  he  does  not  obtain  an  unqualified  acceptance, 
he  may  treat  the  bill  as  dishonored  by  non-acceptance. 
Where  a  qualified  acceptance  is  taken,  the  drawer  and  in- 
dorsers  are  discharged  from  liability  on  the  bill,  unless  they 
have  expressly  or  impliedly  authorized  the  holder  to  take  a 
qualified  acceptance,  or  subsequently  assent  thereto.  When 
the  drawer  or  indorser  receives  notice  of  a  qualified  ac- 
ceptance, he  must  within  a  reasonable  time  express  his  dissent 
to  the  holder,  or  he  will  be  deemed  to  have  assented  thereto. 

Aeticle  III. — Peesentment  fob  Acceptance. 

Sec.  143.  Presentment  for  acceptance  must  be  made.: 

1.  Where  the  bill  is  payable  after  sight,  or  any  other  case 
where  presentment  for  acceptance  is  necessary  in  order  to 
fix  the  maturity  of  the  instrument;  or, 

2.  Where  the  bill  expressly  stipulates  that  it  shall  be 
presented  for  acceptance;  or, 

3.  Where  the  bill  is  drawn  payable  elsewhere  than  at  the 
residence  or  place  of  business  of  the  drawee. 

In  no  other  case  is  presentment  for  acceptance  necessary 
in  order  to  render  any  party  to  the  bill  liable. 

Sec.  144.  Except  as  herein  otherwise  provided,  the  holder 
of  a  bill  which  is  required  by  the  next  preceding  section 
to  be  presented  for  acceptance  must  either  present  it  for 
acceptance  or  negotiate  it  within  a  reasonable  time.  If  he 
fails  to  do  sOj  the  drawer  and  all  indorsers  are  discharged. 


166  Negotiable  Paper. 

Sec.  145.  Presentment  for  acceptance  must  be  made  by 
or  on  behalf  of  the  holder  at  a  reasonable  hour,  on  a 
business  day,  and  before  the  bill  is  overdue,  to  the  drawee 
or  some  person  authorized  to  accept  or  refuse  acceptance 
on  his  behalf;  and, 

1.  Where  a  bill  ia  addressed  to  two  or  more  drawees 
who  are  not  partners,  presentment  must  be  made  to  them  all, 
unless  one  has  authority  to  accept  or  refuse  acceptance  for 
all,  in  which  case  presentment  may  be  made  to  him  only. 

2.  Where  the  drawee  is  dead,  presentment  may  be  made 
to  his  personal  representatives. 

3.  Where  the  drawee  has  been  adjuged  a  bankrupt  or  an 
insolvent,  or  has  made  an  assignment  for  the  benefit  of 
creditors,  presentment  may  be  made  to  him  or  to  his  trustee 
or  assignee. 

Sec.  146.  A  bill  may  be  presented  for  acceptance  on  any 
day  on  which  negotiable  instruments  may  be  presented  for 
payment  under  the  provisions  of  sections  72  and  85  of  this 
Act.  When  Saturday  is  not  otherwise  a  holiday,  present- 
ment for  acceptance  may  be  made  before  12:00  o'clock  noon 
on  that  day. 

Sec.  147.  Where  the  holder  of  a  bill  drawn  payable  else- 
where than  at  the  place  of  business  or  residence  of  the 
drawee  has  not  time,  with  the  exercise  of  reasonable  diligence 
to  present  the  bill  for  acceptance  before  presenting  it  for 
payment  on  the  day  that  it  falls  due,  the  delay  caused  by 
presenting  the  bill  for  acceptance  before  presenting  it  for 
payment  is  excused  and  does  not  discharge  the  drawers  and 
indorsers. 

Sec.  148.  Presentment  for  acceptance  is  excused  and  a  bill 
may  be  treated  as  dishonored  by  non-acceptance  in  eithtr  of 
the  following  cases: 

1.  Where  the  drawee  is  dead,  or  has  absconded,  or  is  a 
fictitious  person  or  a  person  not  having  capacity  to  cob- 
tiact  by  bill. 


Amesioan  Gommeecial  Law.         16T 

2.  Where,  after  the  exercise  of  reasonable  diligence  present- 
ment cannot  be  made. 

3.  Where,  although  presentment  had  been  irregular,  ac- 
ceptance has  been  refused  on  some  ground. 

Sec.  149.    A  bill  is  dishonored  hj  non-acceptance: 

1.  When  it  is  duly  presented  for  acceptance  and  such 
an  acceptance  as  is  prescribed  by  this  Act  is  refused  or  can 
rot  be  obtained;  or, 

2.  When  a  a  presentment  for  acceptance  is  e|:cused  and  th* 
bill  ifi  not  accepted. 

Sec.  150.  Where  a  bill  is  duly  presented  for  acceptance  and 
is  not  accepted  within  the  prescribed  time,  the  person  pre- 
senting it  must  treat  the  bill  as  dishonored  by  non-accept- 
ance, or  he  loses  the  right  of  recourse  against  the  drawer  and 
indorsers. 

Sec.  151.  When  a  bill  is  dishonored  by  non-acceptance,  an 
immediate  right  of  recourse  against  the  drawers  and  in- 
dorsers accrues  to  the  holders,  and  no  presentment  for 
payment  is  necessary. 

Axncva  IV. — Peotkst. 

Sec.  152.  Where  a  foreign  bill  appearing  on  its  face  to 
be  such  is  dishonored  by  non-acceptance,  it  must  be  duly 
protested  for  non-acceptance,  and  where  such  a  bill  which 
has  not  previously  been  dishonored  by  non-acceptance  it 
dishonored  by  non-payment,  it  must  be  duly  protested  for 
non-payment.  If  it  is  not  so  protested,  the  drawer  and  in- 
dorsers are  discharged.  Where  a  bill  does  not  appear  cm 
its  face  to  be  a  foreign  bill,  protest  thereof,  in  case  of  dis- 
honor, is  unnecessary. 

Sec.  153.  The  protest  must  be  annexed  to  the  bill  or  must 
contain  a  copy  thereof,  and  must  be  under  the  hand  and 
seal  of  the  notary  making  it  and  must  specify: 

1.  The  time  and  place  of  presentment. 


168  Negotiable  Papee. 

2.  The  fact  that  presentment  was  made  and  the  manner 
thereof. 

3.  The  cause  or  reason  for  protesting  the  bill. 

4.  The  demand  made  and  the  answer  given,  if  any,  of  the 
fact,  that  the  drawee  or  acceptor  could  not  bo  foimd. 

Sec.  154.  Protest  may  be  made  by: 

1.  A  notary  public;  or, 

2.  By  any  respectable  resident  of  the  place  where  the  bill 
is  dishonored,  in  the  presence  of  two  or  more  credible  wit- 
nesses. 

Sec.  155.  When  a  bill  is  protected,  such  protest  must  be 
made  on  the  day  of  its  dishonor,  unless  delay  is  excused  as 
herein  provided.  When  a  bill  has  been  duly  noted,  the 
protest  may  be  subsequently  extended  as  of  the  date  of  the 
noting. 

Sec.  156.  A  bill  must  be  protested  at  the  place  where  it 
is  dishonored,  except  that  when  a  bill  drawn  payable  at  the 
place  of  business  or  residence  of  some  person,  other  than 
the  drawee,  has  been  dishonored  by  non-acceptance,  it  must 
be  protested  for  non-payment  at  the  place  where  it  is  ex- 
pressed to  be  payable;  and  no  other  presentment  for  pay- 
ment to,  or  demand  on,  the  drawee  is  necessary. 

Sec.  157.  A  bill  which  has  been  protested  for  non-acceptance 
may  be  subsequently  protested  for  non-payment. 

Sec.  158.  When  the  acceptor  has  been  adjudged  a  bank- 
rupt or  an  insolvent  or  has  made  an  assignment  for  the 
benefit  of  creditors,  before  the  bill  matures,  the  holder  may 
cause  the  bill  to  be  protested  for  better  security  against  the 
drawer  and  indorsers. 

Sec.  159^  Protest  is  dispensed  with  by  any  circumstances 
which  would  dispense  with  notice  of  dishonor.  Delay  in 
noting  or  protesting  is  excused  when  delay  is  caused  by 
circumstances  beyond  the  control  of  the  holder  and  not 
imputable  to  his  default,  misconduct  or  negligence.     When 


American  Commercial  Law.         169 

the  cause  of  delay  ceases  to  operate,  the  hill  must  he  noted 
or  protested  with  reasonable  diligence. 

Sec.  160.  Where  a  bill  is  lost  or  destroyed,  or  is  wrongly 
detained  from  the  person  entitled  to  hold  it,  protest  may  be 
made  on  a  copy  or  written  particulars  thereof. 

AKTIOLE  v. — ACGKPTAITCE  FOB  HONOB. 

See.  161.  Where  a  bill  of  exchange  has  been  protested  for 
dishonor  by  non-acceptance,  or  protested  for  better  security 
and  is  not  overdue,  any  person  not  being  a  party  already 
liable  thereon,  may,  with  the  consent  of  the  holder,  intervene 
and  accept  the  bill  supra  protest  for  the  honor  of  any  party 
liable  thereon  or  for  the  honor  of  the  person  for  whose  ac- 
count the  bill  is  drawn.  The  acceptance  for  honor  may  be 
for  part  only  of  the  sum  for  which  the  bill  is  drawn,  and 
where  there  has  been  an  acceptance  for  honor  for  one  party 
there  may  be  a  further  acceptance  by  a  different  person  for 
the  honor  of  another  party. 

Sec.  162.  An  acceptance  for  honor  supra  protest  muet  be 
in  writing  and  indicate  that  it  is  an  acceptance  for  honor, 
and  must  be  signed  by  the  acceptor  for    honor. 

Sec.  163.  Where  an  acceptance  for  honor  does  not  express- 
ly state  for  whose  honor  it  was  made,  it  is  deemed  to  be  an 
acceptance  for  the  honor  of  the  drawer. 

Sec.  164.  The  acceptor  for  honor  is  liable  to  the  holder 
and  to  all  parties  to  the  bill  subsequent  to  the  party  for 
whose  honor  he  has  accepted. 

Sec.  165.  The  acceptor  for  honor  by  such  acceptance  en- 
gages that  he  will,  on  due  presentment,  pay  the  bill  according 
to  the  terms  of  his  acceptance:  Provided,  it  shall  not  have 
been  paid  by  the  drawee:  And  provided,  also,  that  it 
shall  have  been  duly  presented  for  payment  and  protested 
for  non-payment  and  notice  of  dishonor  given  to  him. 


170  Negotiable  Paper. 

Sec.  166.  When  a  bill  payable  after  sight  is  accepted  for 
honor,  its  maturity  is  calculated  from  the  date  of  the 
noting  for  non-acceptance  and  not  from  the  date  of  the 
acceptance  for  honor. 

Sec.  167.  Where  a  dishonored  bill  has  been  accepted  for 
honor  supra  protest  or  contains  a  reference  in  case  of  need, 
it  must  be  protested  for  non-payment  before  it  is  presented 
for  payment  to  the  acceptor  for  honor  or  referee  in  case 
of  need. 

Sec.  168.  Presentment  for  payment  to  the  acceptor  for  honor 
must  be  made  as  follows: 

1.  If  it  is  to  be  presented  in  the  place  where  the  pro- 
test for  nonpayment  was  made,  it  must  be  presented  not 
later  than  the  day  following  its  maturity. 

2.  If  it  is  to  be  presented  in  some  other  place  than  the 
place  where  it  was  protested,  then  it  must  be  forwarded 
within  the  time  specified  in  section  104. 

Sec.  169.  The  provisions  of  section  81  apply  where  there 
is  delay  in  making  presentment  to  the  acceptor  for  honor 
or  referee  in  case  of  need. 

Sec  170.  When  the  bill  ia  dishonored  by  the  acceptor  for 
honor,  it  must  b«  protested  for  non-payment  by  him. 


Abticle  VI. — ^Payment  fob  Hoetob. 

Sec.  171.  Where  a  bill  has  been  accepted  for  non-payment, 
any  person  may  intervene  and  pay  it  supra  protest  for  the 
honor  of  any  person  liable  thereon  or  for  the  honor  of  the 
person  for  whose  account  it  was  drawn. 

Sec.  172.  The  payment  for  honor  supra  protest  in  order 
to  operate  as  such,  and  not  as  a  mere  voluntary  payment, 
must  be  attested  by  a  notarial  act  of  honor,  which  may  be 
appended  to  the  protest  or  form  an  extension  to  it. 


Amebican  Commercial  Law.         171 

Sec.  173.  The  notarial  act  of  honor  must  be  founded  on  a 
declaration  made  by  the  payer  for  honor  or  by  his  agent 
in  that  behalf  declaring  his  intention  to  pay  the  bill  for  honor 
and  for  whose  honor  he  pays. 

Sec.  174.  Where  two  or  more  persons  offer  to  pay  a  bill 
for  the  honor  of  different  parties,  the  person  whose  payment 
will  discharge  most  parties  to  the  bill  is  to  be  given  pref- 
erence. 

Sec.  175.  Where  a  bill  has  been  paid  for  honor,  all  parties 
subsequent  to  the  party  for  whose  honor  it  is  paid,  are  dis- 
charged, but  the  payer  for  honor  is  subrogated  for,  and  suc- 
ceeds to,  both  the  rights  and  duties  of  the  holder  as  regards 
the  party  for  whose  honor  he  pays  and  all  parties  liable 
to  the  latter. 

Sec.  176.  Where  the  holder  of  a  bill  refuses  to  receive 
payment  supra  protest,  he  loses  his  right  of  recourse  against 
any  party  who  would  have  been  discharged  by  such  pay- 
ment. 

Sec.  177.  The  payer  for  honor,  on  paying  to  the  holder 
the  amount  of  the  bill  and  the  notarial  expenses  incidental 
to  its  dishonor,  is  entitled  to  receive  both  the  bill  itself  and 
the  protest. 


ABTTOLn  VII. — ^Bnxs  tn  a  skt. 

See.  178.  Where  a  bill  is  drawn  in  a  set,  each  part  of  tha 
set  being  numbered  and  containing  a  reference  to  other  parts 
the  whole  of  the  parts  constitute  one  bill. 

Sec.  179.  Where  two  or  more  parts  of  a  set  are  negotiated 
to  different  holders  in  due  course,  the  holder  whose  title 
first  accrues  is,  as  between  such  holders,  the  true  owner  of 
the  bill.  But  nothing  in  this  section  affects  the  rights  of 
a  person  who  in  due  course  accepts  or  pays  the  part  first 
presented  to  him. 


172  Negotiable  Paper. 

Sec.  180.  Where  the  holder  of  a  set  indorses  two  or  more 
parts  to  diflferent  persons  he  is  liable  on  every  such  part  and 
every  indorser  subsequent  to  him  is  liable  on  the  part  he 
has  himself  indorsed,  as  if  such  parts  were  separate  bills. 

Sec.  181.  The  acceptance  may  be  written  on  any  part  and  it 
must  be  written  on  one  part  only.  If  the  drawee  accepts 
more  than  one  part,  and  such  accepted  parts  are  negotiated 
to  different  holders  in  due  course,  he  is  liable  on  every 
■uch  part  as  if  it  were  a  separate  bill. 

Sec.  182.  When  the  acceptor  of  a  bill  drawn  in  a  set  pays 
it  without  requiring  the  part  bearing  his  acceptance  to  be 
delivered  up  to  him,  and  that  part  at  maturity  is  out  standing 
in  the  hands  of  a  holder  in  due  course,  he  is  liable  to  the 
holder  thereon. 

Sec.  183.  Except  as  herein  otherwise  provided,  where  any 
one  part  of  a  bill  drawn  in  a  set  is  discharged  by  payment 
or  otherwise,  the  whole  bill  is  discharged. 

TiTLK  m.— "Pbomissoet  Notes  and  Cjceckb. 
Abticue  I. 

Sec.  184.  A  n^[otiable  promissory  note  within  the  meaning 
of  this  Act  is  an  unconditional  promise  in  writing  made  by 
one  person  to  another,  signed  by  the  maker,  engaging  to 
pay  on  demand  or  at  a  fixed  or  determinable  future  time, 
a  sum  certain  in  money  to  order  or  to  bearer.  Where  a 
note  is  drawn  to  the  maker's  own  order,  it  is  not  complete 
until  indorsed  by  him. 

Sec.  185.  A  check  is  a  bill  of  exchange  drawn  on  a  bank 
payable  on  demand.  Except  as  herein  otherwise  provided, 
the  provisions  of  this  Act  are  applicable  to  a  bill  of  ex- 
change payable  on  demand  apply  to  a  check. 

Sec.  186.  A  check  must  be  presented  for  payment  within  a 
reasonable  time  after  its  issue,  and  notice  of  dishonor  given 


American  Ck)MMERC5iAL  Law.         173 

to  the  drawer  as  provided  for  in  the  case  of  Mils  of  ex- 
change, or  the  drawer  will  be  discharged  from  liability  there- 
on to  the  extent  of  the  loss  caused  by  the  delay. 

Sec.  187.  Where  a  check  is  certified  by  the  bank  on  which 
it  is  drawn,  the  certification  is  equivalent  to  an  acceptance. 

Sec.  188.  Where  the  holder  of  a  check  procures  it  to  be 
accepted  or  certified,  the  drawer  and  all  indorsers  are  dis- 
charged from  liability  thereon. 

Sec.  189.  A  check  of  itself  does  not  operat*  as  an  assign- 
ment of  any  part  of  the  funds  to  the  credit  of  the  drawer 
with  the  bank,  and  the  bank  is  not  liable  to  the  holder,  un- 
less and  until  it  accepts  or  certifies  the  check. 

TrruB  IV. — Genxrax  PaoTisieara. 

Abtecub  I. 

Sec.  190.  This  Act  shall  be  known  as  the  Negotiable  In- 
strument Law. 

Sec.  191.  In  this  Act,  unless  the  context  otherwise  requires: 

"Acceptance"  means  an  acceptance  completed  by  deliveiry 
or  notification. 

"Action"  includes  counter-claim  and  set-oflf. 

"Bank"  includes  any  person  or  association  of  persons  carry- 
ing on  the  business  of  banking,  whether  incorporated  or  not. 

"Bearer"  means  the  person  in  possession  of  a  bill  or 
note  which  is  payable  to  bearer. 

"Bill"  means  bill  of  exchange,  and  "note"  means  negotiable 
promissory  note. 

"Delivery"  means  transfer  of  possession,  actual  ox  CMi- 
structive,  from  one  person  to  another. 

"Holder"  means  the  payee  or  indorsee  of  a  bill  or  note, 
who  is  in  possession  of  it,  or  the  bearer  thereof. 

"Indorsement"  means  an  indorsement  completed  by  de- 
livery. 


174  Negotiable  Paper. 

"Instrument"  means  negotiable  instrument. 

"Issue"  means  the  first  delivery  of  the  instrument,  com- 
plete in  form,  to  a  person  who  takes  it  as  holder. 

"Person"  includes  a  body  of  persons,  whether  iiicorpor« 
ated  or  not. 

"Value"  means  valuable  consideration. 

"Written"   includes  print,   and  "writing"   include!   print. 

Sec.  192.  The  person  "primarily"  liable  on  an  instrimient 
is  the  person  who,  by  the  terms  of  the  instrument,  is  ab- 
solutely required  to  pay  the  same.  All  other  parties  are 
"secondarily"  liable. 

Sec.  193.  In  determining  what  is  a  "reaaonable  time" 
or  an  "unreasonable  time,"  regard  is  to  be  had  to  the 
nature  of  the  instrument,  the  usage  of  trade  or  business  (if 
any)  with  respect  to  such  instruments,  and  the  facts  of 
the  particular  case. 

Sec.  194.  Where  the  day,  or  the  last  day,  for  doing  an  act 
herein  required  or  permitted  to  be  done  falls  on  Sunday 
or  on  a  holiday,  the  act  may  be  done  on  the  n^  succeeding 
secular  or  business  day. 

Sec.  195.  The  provisions  of  this  Act  do  not  apply  to 
Begotiable  instruments  made  and  delivered  prior  to  the 
passage  hereof. 

Sec.  196.  In  any  case  not  provided  for  ia  this  act  the  rules 
of  the  law  merchant  shall  govern. 


APPENDIX  B. 
FORMS. 


APPENDIX  B. 

FORMS. 

1.  Promissory  Note. 

$100.00  Chicago,  111.,  July  1st,  1911. 

August  first,  1911,  after  date,  for  value  received,  I  promise 
to  pay  to  the  order  of  William  Smith,  the  sum  of  One 
Hundred  (100)  Dollars,  at  1011  Blank  Street,  Chicago, 
Illinois,  with  interest  at  6%  per  cent,  per  annum. 

(sd.)     Walteb  Wl  Johnson. 

2.  Judgment  Note. 

Add  to  the  ahove  note  above  the  place  for  the  signature 
the  following: 

And  to  secure  the  payment  of  said  amount  I  hereby 
authorize,  irrevocably,  any  attorney  of  any  Court  of  Record 
to  appear  for  me  in  such  Court,  in  term  time  or  vacation, 
at  any  time  hereafter,  and  confess  a  judgment,  without 
process,  in  favor  of  the  holder  of  this  Note,  for  such  amount 
as  may  appear  to  be  unpaid  thereon,  together  with  costs  and 
ten  dollars  attorney's  fees,  and  to  waive  and  release  all 
errors  which  may  intervene  in  any  such  proceedings,  and 
consent  to  immediate  execution  upon  such  judgment,  hereby 
ratifying  and  confirming  all  that  my  said  attorney  may  do 
by  virtue  hereof. 

(Note:  It  is  better  to  purchase  forms  of  judgment  notes 
from  local  stationers,  as  such  forms  embody  peculiar  provis- 
ions applicable  to  the  condition  of  the  law  in  the  state 
involved.  The  above  is  a  form  used  in  Illinois.  Judgment 
notes  however,  are  not  widely  used.  They  are  used  in 
Illinois,  Ohio,  Pennsylvania,  New  Mexico  and  Wisconsin.) 

(177) 


1Y8  Negotiable  Paper. 

S.    Bill  of  Exchange. 

Cincinnati,  Ohio,  June  1,  1911. 
One  month  after  date,  pay  to  the  order  of  William  H. 
White,   One  Hundred  Dollars.    Value  received,   and   charge 
to  the  account  of 

(sd)     Walter  W.  Johnsow. 
To  Oliver  Smith, 

Chicago,  Illinois. 

An  acceptance  of  the  above  bill  would  read  as  follows: 
"Accepted,  Chicago,  June  3rd,  1911,"  and  would  be  writ- 
ten across  the  face  of  the  bill.  Oliver  Smith  might  also  in 
such  acceptance  name  the  place  of  payment  above  his 
signature,  thus,  "Payable  at  16th  National  Bank,  Chicago." 
This  qualification  is  permitted;  but  if  he  should  say 
"Payable  at  16th  National  Bank  and  not  elsewhere,"  that 
would  be  a  qualified  acceptance  and  constitute  dishonor, 
unless  the  holder  assented. 

4.  Checks. 

No.  1490.  Chicago,  July  1st,  1911. 

THE  BLANK  TRUST  AND  SAVINGS  BANK. 

Pay  to  the  order  of John   Smith $1000 

One  Thousand  '      Dollars. 

(sd)     Wm.  Jonxs. 

5.  Certificate  of   Deposit. 

No.  1008.  Chicago,  July  1,  1911. 

James  A.  Jones  has  deposited  in  the  16th  National  Bank 
of  Chicago,  Illinois,  Five  Hundred  Dollars,  payable  to  the 
order  of  himself  upon  the  return  of  this  Certificate  properly 
endorsed.     Interest  3  per  cent,  per  annum. 
Not  subject  to  chedc 

WnjJAM  Randolph, 

Cajdiier. 


American  Commercial  Law.         179 

6.  Forms  of   Indorsement. 

(1)     Blank  indorsement. 

WniiAM   Jones. 
.(2)     Special  indorsement. 

Pay  to  the  order  of  John  Smith. 
William    Jones. 
or.  Pay  to  John  Smith. 

William   Jones. 

(3)  Qualified  indorsement. 

without  recourse, 

WnxiAM    JOITES. 

(4)  Restrictive  indorsement. 

Pay  to  John  Smith,  for  collection. 
WnxiAM   Jones. 

7.  Notice    of    Dishonor    of    Note    Where    Note    Not 

Protested. 

July  1,  1911. 
You  are  hereby  notified  that  a  promissory  note  made  by 
John  Smith,  dated  June  1,  1911,  payable  one  month  after 
date  to  the  order  of  William  H.  White,  and  indorsed  by 
said  WUUiam  H.  White,  was  this  day  presented  by  the 
undersigned  for  payment  which  was  refused  and  the  under- 
signed as  holder  looks  to  you  as  indorser  for  payment, 
damages,  interest  and  costs. 

(sd)     Joseph  Black, 

1820  Blank  Street, 
Chicago,  Illinois. 
To  William  H.  White, 
190  Blank  Street, 
Chicago,  Illinois. 


180  Negotiable  Paper. 

8.    Certificate  of  Protest. 

(Here  attach  original  instrument  or  copy  thereof.) 


} 


State  of  Iluwois, 
Cook  County. 

Be  it  Known,  That  on  this  first  day  of  July  in  the  year  of 
our  LfOrd  One  Thousand  Nine  Hundred  and  Eleven,  I,  Henry 
N.  Green,  a  Notary  Public,  duly  commissioned  and  sworn, 
and  residing  in  the  City  of  Chicago  in  said  County  and 
State,  at  the  request  of  Henry  W.  Jones,  the  holder  of  the 
above  bill  of  exchange,  went  with  the  original  bill  of  exchange 
which  is  above  attached,  to  the  Office  of  The  First  National 
Bank,  where  such  bill  is  payable,  during  the  usual  business 
hours  and  demanded  payment  thereon,  which  was  refused 
for  the  following  assigned  reason — not  sufficient  funds  and 
no  instructions  to  pay. 

Whereupon  I,  the  said  Notary,  at  the  request  aforesaid, 
did  PROTEST,  and,  by  these  Presents,  do  Solemnly  Protest, 
as  well  against  the  drawer  of  said  bill  and  the  indorsers 
thereof,  as  all  others  whom  it  may  or  doth  concern,  for 
exchange,  re-exchange  and  all  costs,  charges,  damages  and 
interest  already  incurred  by  reason  of  the  non-payment  of 
the  said  bill  of  exchange. 

And  I,  the  said  Notary,  do  hereby  certify,  that,  on  the 
same  day  and  year  above  written,  due  notice  of  the  foregoing 
Protest  was  put  in  the  Post-Office  at  Chicago,  Illinois,  as 
follows : 

Notice  for  Wlalter  W.  Johnson,  12  Blank  Street,  Cincinnati, 
Ohio.     Notice  for  William  H.  White,  Blankville,  Illinois. 

Each  of  the  above-named  places  being  the  reputed  place 
of  residence  of  the  person  to  whom  this  notice  was  directed. 

In  testimony  whereof,  I  have  hereunto  set  my  hand  and 
affixed  my  Official  Seal,  the  day  and  year  first  above  written. 

Notary  Public. 


American  Commercial  Law.         181 

Fees — ^Noting  for  Protest, 25  cents;  Protest,. . .  .75  cent»; 

Noting  Protest,. . .  .25  cents;  Notices,. . .  .50. 

Certificate  and  Seal,.... 25  cents;  Postage,....  4  cents; 
Vol.   1;   page  272;  $2.04. 

(Note:  If  the  protest  is  for  non-acceptance  this  same 
form  may  be  used  by  writing  in  "non-acceptance"  for  "non- 
payment.") 

9.    Notice  of  Protest  of  Note. 


CIS,       "i 

J 


State  of  IixiNoia 
Cook  Coxjntt, 

July  Ist,  1911. 

A  promissory  note  for  $100.00  payable  to  the  order  of 
William  Jones,  dated  July  1st,  1910,  payable  July  1st, 
1911,  signed  by  John  Smith,  indorsed  by  William  Jones, 
being  this  day  due  and  unpaid,  and  by  me  PROTESTED 
for  non-payment,  I  hereby  notify  you  that  the  payment 
thereof  has  been  duly  demanded,  and  that  the  holder  looks 
to  you  for  payment,  damages,  interest  and  costs. 

Done  at  the  request  of  Henry  W.  Jones,  1711  Blank 
Street,  Chicago,  Illinois. 

E£NBT     N.     QrBSSSS, 

Notary  Public. 
To  William  Jones, 

1512  Blank  Street, 
Chicago,  Illinois. 
(Vote:     It  is  not  necessary,  but  usual,  to  protest  a  note 
or  inland  bill,  but  a  foreign  bill  must  be  protested.) 

10.     Notice  of  Protest  of  Bill. 


•} 


State  of  Iixmois 

Cook  Coxjott. 

Chicago,  July  1,  1911. 
Take  notice  that  a  bill  of  exchange  for  $100.00,  dated  June 
1,  1911,  drawn  by  Walter  W.  Johnson,   12  Blank  Street, 


182  Negotiable  Paper. 

Cincinnati,  Ohio,  in  favor  of  William  H.  White,  on  Oliver 
Smith,  Chicago,  Illinois,  indorsed  by  said  William  H.  White, 
accepted  by  said  Oliver  Smith,  payable  at  16th  National 
Bank,  Chicago,  was  this  day  presented  for  payment,  which 
was  refused,  and  therefore  was  this  day  protested  by  the 
undersigned  notary  public  for  non-payment. 

The  holder  therefore  looks  to  you  for  payment  thereof 
together  with  interest,  costs,  damages,  etc.,  you  being  the 
drawer  thereof. 

Henby  N.  Gbeen, 

Notary  Public. 
To  Walter  W.  Johnson, 
12  Blank  Street, 
Cincinnati,  Ohio. 


APPENDIX  C. 
TABLE  OF  INTEREST  LAWS. 


APPENDIX  C. 

Table  Showing  What  Interest  May  Be  Charged  in  the 

Different  States  and  the  Effect  of  Charging 

XJsuxj. 


State 


Interest 
Chargeable 
By  Contract 


Penalty  for  Usury 


Alabama 

Alaska 

Arizona 

Arkansas 

California 

Colorado 

Connecticut 

Delaware 

District  of  Columbia 

Florida 

Georgia 

Idaho 

Illinois 

Indiana 

Iowa 

Kansas 

Kentucky. 


8% 

10% 
No  limit 

10% 
No  limit 
No  limit 

15% 

6% 
10% 
10% 

8% 
12% 

7% 
8% 
8% 

10% 
8% 

185 


Forfeiture  of  all  In- 
terest. 

None. 

Forfeiture  of  debt. 

None. 

None. 

Forfeiture  of  debt  and 
interest. 

Forfeiture  of  debt  and 
interest. 

Forfeiture  of  all  in- 
terest. 

Forfeiture  of  all  in- 
terest. 

Forfeiture  of  excess  in- 
terest. 

Forfeiture  of  interest 
and  10%  annually  of 
principal. 

Forfeiture  of  all  in- 
terest. 

Forfeiture  of  all  in- 
terest over  6%. 

Forfeiture  of  all  inter- 
est, S%  of  principal 
and  costs  of  suit. 

Forfeiture  of  double 
the  usury. 

Forfeiture  of  excess  in- 
terest. 


1B6 


Negotiable  Paper. 


State 


Louisiana 

Maine. 

Maryland 

Massachusetts. . 

Michigan 

Minnesota 

Mississippi 

Missouri 

Montana 

Nebraska 

Nevada 

New  Hampshire 

New  Jersey 

New  Mexico..  . . 

New  York 

North  Carolina. 

North  Dakota.  . 

Ohio 


Interest 
Chargeable 
By  Contract 


8% 
No  limit 

6% 
No  limit 

7% 
10% 
10% 

8% 

No  limit 
10% 

No  limit 
6% 

6% 
12% 

6% 

6% 
12% 

8% 


Penalty  for  Usury 


Forfeiture  of  all  in- 
terest. 

None    except  for  loans 
less    than    $200    se- 
cured    by  chattel 
mortgage. 

Forfeiture  of  all  in- 
terest. 

On  less  than  $1,000 
only  18%  recover- 
able. 

Forfeiture  of  all  in- 
terest. 

Forfeiture  of  debt  and 
interest. 

Forfeiture  of  all  inter- 
est. 

Forfeiture  of  excess  in- 
terest. 

None. 

Forfeiture  of  all  in- 
terest. 

None. 

Forfeiture  3  times  ex- 
cess interest. 

Forfeiture  of  all  in- 
terest. 

Forfeiture  double  the 
usury. 

Forfeiture  of  debt  and 
interest. 

Forfeiture  of  all  in- 
terest. 

Forfeiture  of  all  in- 
terest. 

Forfeiture  of  excess 
over  6%. 


American  Commercial  Law. 


187 


State 


Interest 
Chargeable 
By  Contract 


Penalty  of  Usury 


Oklahoma 

Oregon 

Pennsylvania. . 

Rhode  Island. . 
South  Carolina. 

South  Dakota.. 

Tennessee 

Texas 

Utah 

Vermont 

Virginia 

Washington . . . 

West  Virginia.. 

Wisconsin 

Wyoming 


10% 

10% 

6% 

No  limit 
8% 

12% 

6% 

10% 

12% 

6% 

6% 

12% 

6% 

10% 

12% 


Forfeiture 

terest. 
Forfeiture 

interest. 
Forfeiture 

terest. 
None. 
Forfeiture 

terest. 
Forfeiture 

terest. 
Forfeiture 

terest. 
Forfeiture 

terest. 
Forfeiture 

interest. 
Forfeiture 

terest. 
Forfeiture 

terest. 
Forfeiture 

terest. 
Forfeiture 

terest. 
Forfeiture 

terest. 
Forfeiture 

terest. 


of  all  in- 
of  debt  and 
of  excess  in- 

of  all  in- 
of    all    in- 

of  excess  in- 
of    all    in* 

of  debt  and 

of  excess  in- 
of  all  in- 
of    all    in- 

of  excess  in- 
of  all  in- 
of    all    in* 


APPENDIX  D. 

QUESTIONS  AND   PROBLEMS. 


APPENDIX   D. 

QUESTIONS  AND  PROBLEMS. 

CHAPTER   ONE. 

1.  State  three  ways  In  which  a  negotiable  Instrument 
differs  from  an  Instrument  not  negotiable.  How  does 
"assignment"  differ  from  "negotiation"? 

2.  Define  a  negotiable  promissory  note.  Who  are  the 
parties  thereto? 

3.  Define  a  bill  of  exchange.  What  two  sorts  are  there? 
Define  them.     Name  the  parties  to  a  bill  of  exchange. 

4.  Define  a  check.  In  what  respect  does  it  differ  from  • 
bin  of  exchange? 

5.  Is  a  certificate  of  deposit  negotiable?     Why? 

6.  When  are  bonds  negotiable? 

7.  Wliat  is  a  "straight"  bill  of  lading?  an  "order"  bill? 
Is  a  warehouse  receipt  negotiable? 

8.  Is  a  mortgage  negotiable?  Is  a  certificate  of  ownership 
of  corporate  stock  negotiable? 

9.  What  are  the  instruments  properly  falling  within  tb« 
negotiable  Instruments  law? 

CHAPTER  TWO. 

10.  Wkat  was  the  origin  of  negotiable  paper? 

11.  What  was  the  first  kind  of  negotiable  Instrument? 

12.  State  the  history  In  brief  of  the  Uniform  Negotiable 
Instruments  Law? 


(Li»i) 


192  Negotiable  Paper. 


CHAPTER    THREE. 

18.  Wliat  are  the  essential  elements  of  a  negotiable  InstrxH 
ment? 

14.  May  a  note  which  Is  signed  by  the  maker's  Initial  be 
negotiable? 

15.  Can  one  whose  name,  assumed  or  real,  is  not  by  one's 
self  or  one's  agent  signed  to  a  note,  be  liable  thereon? 

16.  The  following  note  was  given : 

"New  York,  Jan.  5,  1906. 
"Six  months  after  date   I   promise  to  pay   to   the  order  of 
C.  D.   $3166.     Subject  to  terms  of  contract  between  maker  and 
payee  of  October  25,  1905.     (Signed)     A.  B." 

E.  P.  purchased  his  note  for  value  before  maturity  and  in 
good  faith.  When  he  presented  It  at  maturity  to  A.  B.  for 
payment,  payment  was  refused  on  account  of  the  fact  that  the 
contract  referred  to  had  not  been  performed.  E.  F.  sues  A.  B. 
A.  B.  sets  up  his  defense.  Can  he  avail  of  it  against  E.  F.? 
Why?     (Klots  Co.  v.  M'nTrs  Co.,  179  Fed.  813.) 

17.  A  wrote  an  order  upon  B  to  pay  C  or  order  $200  "out 
of  money  due  me  for  labor."  Is  this  a  bill  of  exchange  or  an 
assignment?  Why?  Why  Is  there  any  importance  In  the  dis- 
tinction?    (Stebblns  v.  Union  Pacific  B.  Co.,  2  Wyo.  71.) 

18.  A  made  a  note  to  the  order  of  B  which  was  secured 
by  a  mortgage  from  A  to  B,  and  one  of  whose  provisions  was 
that  A  should  pay  taxes,  special  assessments,  etc.,  upon  the 
mortgaged  property  and  various  other  conditions  and  stipula- 
tions. B  sold  the  note  and  assigned  the  mortgage  to  C.  Is  this 
note  rendered  non-negotiable  by  the  fact  that  It  states  upon  its 
face  that  it  is  secured  by  a  mortgage  between  the  parties? 
(Zollman  v.  Bank,  238  111.  290.) 

19.  Is  a  note  which  falls  due  in  Installments  negotiable  If 
otherwise  correctly  drawn?  If  It  is  to  bear  "current  rate  of  ex- 
change"? Suppose  It  provides  for  payment  of  a  certain  sum 
"with  an  attorney's  fee  and  costs  of  collection  If  not  paid  at 
maturity"? 

20.  What  li  demand  paper} 


AMXSIOAN  COMMESdAL  LAW.  193 


SI.  If  a  aot«  1«  payablt  •  certain  tin*  after  aa  artat 
wkote  happcaiog  la  uncertain  to  CTer  occar,  and  tk»  afaat  %*9- 
i«na,  doea  tlia  aot«  thereupon  become  negotlablaT 

22.     What  are  worda  of  negotlabllltTT    01t«  tliem. 

2S.  A  BUide  eat  Ua  ckeck  pajable  ta  "caak."  la  CUa  aafa- 
tUbUT 

CHAFTKB  ft>UB> 
M.    Wlat  la  a  '^ndfment  note'^l    la  It  aefotUblet 

25.  If  the  date  la  omitted,  la  aa  Inatniment  rendered 
thereby  non-necotlableT  Wbat  la  tbe  rule  with  reference  to  ante- 
dating and  poat-datlng? 

26.  If  a  check  atatea  the  anm  payable  t>  writing  la  the 
body  and  In  flgarea  In  the  margin,  and  tbert  la  a  dlaerepaacy 
between  the  twe,  wUcb  goTema? 

CHAFTEB  FITB. 

ST.    A  Bade  a  note  payable  to  the  order  of  B,  bat  told  B 

aot  to  make  use  of  It  ondcr  any  drcnmstancea  except  vp«n  a 
certain  condition.  B,  In  violation  of  thia  atlpulation  Indoraed 
the  note  to  C  who  paid  yalne  for  It  and  took  before  matnrltj 
and  In  good  faith.     la  A  reaponsible  ta  C7    Why? 

S8.  B  haa  a  note  payable  to  bla  order  by  A  with  anm  la 
blank.  He  Informa  C  that  he  authorized  to  fill  In  any  amount 
np  to  flOOO.  His  real  authority  la  to  fill  op  for  not  orer  $500. 
C  paya  B  $1000  for  the  note  which  aum  la  thereupon  filled  In 
by  B,  and  the  note  la  Indoraed  and  deliyered  t*  C.  Caa  C  hold 
A  (or  $1000  oa  the  aete7 

29.  Olre  the  proper  form  at  ilgnatara  Ut  aa  ageat  ta  aae 
la  bladlag  hla  principal. 

CHA7TEB  tlX. 

M.    A,  ancle  a(  B,  aa  a  gift  to  B,  gave  B  a  premlaaery 

aote  reading  to  B'a  order  payable  oa  July  1,  1911,  wiilch  waa 
B'a  twenty-first  birthday.  When  that  date  occurred,  A  Inferaaed 
B  he  would  not  honor  the  Bote.  B  brought  salt.  Haa  A  aay 
good  defenael     Why} 


DM  Nbgotublb  Papeb, 


tl.  Ii  It  Beeestary  to  r*f«r  t*  the  eonsldcratloa  la  a  m*- 
f*tlabl«  iBBtnimentT  Arc  the  word*  "ralac  recelTed"  *t  th«lr 
•qolralent  necessary? 

82.  ▲  beught  a  lot  of  eecond  hand  (arnltnre  from  B  at  an 
atreed  price  of  $500  and  gaye  B  his  promissory  note  for  that 
■am  payable  In  three  months.  This  was  an  exorbitant  price  as 
▲  conld  hare  purchased  its  equivalent  for  not  over  $100  at  any 
second  hand  furniture  dealer's.  A  discovers  that  the  price  is 
excessive.  Can  he  set  ap  this  inadequacy  to  defeat  the  Bete 
in  whole  or  part  7 

•8.  A  desired  t*  borrow  $509  from  B.  B  was  wlllinc  to 
loaa  the  money  to  A  If  C  would  sign  the  note  with  A.  C  did 
M  pnrely  as  an  act  of  friendship,  which  B  knew.  No  benefit 
was  derived  by  C,  nor  was  it  expected  by  the  parties  that  he 
■hoold  receive  any  of  the  consideration  or  any  benefit  Can  C 
whea  tried  bj  B,  Mt  ap  lack  of  consideration  T  WhyT  What 
to  C  calleit 

CBLUTBB  BBVnif. 

•4.  Define  acceptance.  Hay  an  aeeeptaac*  be  orally  aadol 
ICtut  it  ho  on  the  face  of  the  bill  itself? 

SB.  A  draws  on  B  in  favor  of  C,  and  C  sends  the  bill  to 
B  for  acceptance.  B  retains  the  paper  and  makes  no  reply  to  C. 
C  claims  that  this  retention  amounted  to  an  acceptance.  What 
to  the  rvle? 

86.  What  Is  a  qualified  acceptance?  Must  the  holder  be 
content  with  a  qualified  acceptance?  What  is  its  effect  upon 
the  drawer  and  prior  Indorsers?  If  the  acceptance  names  a 
place  of  payment,  to  thto  a  qualified  acceptance? 

ST.  A  drew  a  check  upon  the  Ocean  National  Bank,  and 
delivered  it  to  the  payee  who  procured  its  certification.  The 
drawer  had  sufBclent  funds  to  pay  the  check  and  the  amount 
of  the  eheck  was  charged  off  against  him.  Within  an  hour  the 
bank  sospended  payment  Can  the  payee  hold  A  upon  this 
check? 

CHAPTER  BIGHT. 

St.  A,  (or  the  purpose  of  securing  credit  with  C,  irew  a 
fen  9t  oxchaBgo  on  B.  requesting  B  to  accept  it,  and  informing 


AMBRIOAN  OOMMBBGIAL  LAW.  195 


B  that  k«.  A,  weali  b«  able  to  pay  It  wken  It  becaat  Mm9, 
whereapon  B  wrote  bli  acceptance  npon  the  bill.  What  la  B 
called?  If  C  knew  before  he  extended  credit  to  A  that  B  ae- 
cepted  or  would  accept  wltbont  aay  beneit  to  him,  la  B  llablo 
toCT 

80.  In  the  forecolng  case.  If  A  doea  Bot  pay  tho  bill  or 
fumlah  B  wKb  fonda  wherewith  to  pay  It,  what  aro  B'a  rlghta? 

40.  What  la  acceptance  for  honor)  What  la  essential  before 
there  eaa  be  acceptance  for  honor!  In  what  Baaner  la  the 
acceptance  for  honor  atadeT 

41.  What  steps  aiast  ba  takes  by  •  kolder  la  order  to  hold 
hlM  rlfhta  against  an  acceptor  for  honor  f 

42.  Define  payoieat  tor  honor.  State  tko  ■athoA  of  auiklnt 
payacBt  for  hoaor. 


CHAmBB  MTO. 

M.    Vaaia  two  aorta  of  negotlatloB. 

44.    DoflBO  an  allonge  aad  state  Ita  pnrpoaa 

46.  May  aa  Indorsement  bo  made  on  a  aeparato  lastni- 
Bteat? 

46.  la  It  necessary  te  use  words  of  aegotlablllty  la  aa  la> 
dorsemcat  In  order  to  contlnae  Its  negotiable  character. 

47.  What  la  tho  rolo  aa  to  partial  iadorsement  of  «a  la- 
atmment) 

48.  What  la  a  special  ladorsement?    Giro  an  exampla. 

49.  What  Is  a  blank  Indorsement?  QIto  aa  example.  How 
■ay  a  blank  Indorsement  be  conrerted  Into  a  special  Indotao- 
ment  by  the  Indorsee  or  holder? 

60.  What  Is  a  aoallfled  Indorsement  f 

61.  What  la  a  rtstrktlTO  ladorsemeatf    Wlat  la  Hi  tat^ 
I 


IM  Nbgotiablb  Papbb^ 


CHAPTER  TEN. 

BS.  Wbe  to  •  bolder  In  due  eonraet  Wlij  to  It  toiportaat 
that  one  shoald  b«  a  bolder  In  doe  coarn? 

68.  A  makea  a  negotiable  note  to  B  for  $100.  B  tranaferi 
It  to  C  for  $50.    Wbat  are  C's  risbtsT 

64.  Wbat  constitutes  one  a  bolder  in  good  faltht  Suppose 
one  pnrrbases  negotiable  paper  for  a  Tery  mocb  smaller  sam 
tban  Its  face  ralue.  Does  tb«  fact  tbat  it  is  procurable  at  tbis 
large  discount  prerent  tbe  purchaser  from  being  a  holder  in  dna 
course? 

66.  Does  the  fact  tliat  an  instrument  is  overdue  thereby 
depriye  it  of  Its  negotiable  character?  Why  is  it  Important  in 
buying  paper  to  purchase  it  before  it  is  overdue?  When  is 
demand  paper  overdue  in  the  sense  that  it  prevents  a  purchaser 
from  being  a  bolder  in  due  course? 

66.  How  can  one  purchase  with  notice  of  a  defense  good 
against  the  original  party  and  still  be  a  bolder  In  due  course? 

67.  Name  the  defenses  which  the  party  liable  on  an  in- 
strument could  have  made  against  a  prior  party  but  cannot  b* 
made  against  a  bolder  In  due  course. 

68.  A  made  out  bis  check  to  B  and  delivered  it  to  B,  B 
Intending  to  bank  it,  indorsed  it  in  blank  and  put  it  la  his  pocket 
from  which  It  was  stolen  by  C.  C  sold  It  to  D  for  value.  D 
did  not  know  bow  C  came  by  it.  Assume  tbat  the  check  is 
negotiable  as  drawn.  Can  tbe  lack  of  delivery  to  C  and  hto 
theft  of  it  be  used  against  D  by  any  party?  \ 

69.  Name  tht  defanaea  which  caa  be  set  up  asalaat  a  holder 
in  dne  coorM. 

CHAPTEB  ELETEH. 

60.  What  to  tbe  contract  of  the  maker  of  ■  aetet 

61.  What  to  tbe  contract  of  a  drawer  ef  a  biU  or  cheekt 

63.    Wbat  to  the  contract  of  the  acceptor  of  a  bill? 

68.  What  Is  the  contract  of  an  unqualified  Ibdorser?  Of 
tm»  who  traasfera  without  indorsement?     Of  one  who  iadoraea 


American  Commeboial  Law.         19T 

'*wlthe«t  reeonn*"?  ▲  wm  •  mlaw.  B«  mad*  a  note  to  B 
who  ladoried  It  without  nconne  to  C  A  plM4  his  ■daerlty. 
C«B  C  hold  BT     Wh7T 

M.    Who  la  aa  aaoaalooa  ladorscrf    What  la  hla  cwitraetf 

CHAFTBB  VWXLYB. 

if.  Wh7  do«fl  tht  law  regain  ctrtala  fenaal  tteiw  to  he 
taken  to  charge  parties  aacondarlly  liable  oa  a  aecotlahl*  iBstro- 
■catf 

Ml  If  one  seeka  to  k»li  the  maker  of  a  note,  aiaat  he 
■how  that  oB  the  date  of  Its  matnrltj  ho  presented  It  to  the 
■aker  and  demanded  Its  paymeBt? 

6T.  Snppoie  a  note  Is  payable  at  a  certain  street  address 
Ib  a  certain  city,  bat  the  holder  does  not  hare  It  there  t9t 
payment  on  that  day.  What  effect.  If  any,  does  this  hare  oa  the 
■taker's  liability? 

68.  At  what  date  and  hoar  mast  aegotlahle  paper  he  pre- 
■ented  to  the  party  liable  thereon  In  order  that  rights  against 
parties  secondarily  liable  may  he  savedT  Wliat  Is  the  rnle  where 
paper  Is  payable  on  demand?  What  are  days  of  grace?  Ate 
rach  days  allowed  In  most  states? 

69.  Where  paper  falls  dne  en  Snnday  or  a  legal  holiday 
when  most  it  be  presented?  What  la  the  role  where  It  falls 
ive  OB  Saturday? 

TO.  How  Is  tlsae  computed  where  •■  Instrusftent  la  pajahle 
m  Btany  days  or  a  siOBth  after  sight? 

Tl.    At  what  place   most  snch   paper  be   presented?     To 

«k«B? 

T2.  Wliea  may  one  hold  an  Indorser  or  drawer  notwlth* 
standing  he  makes  bo  presentment  for  payment  to  the  maker  o> 
acceptor? 

TS.  When  Is  presentment  for  acceptance  necessary  to  hold 
parties  secondarily  liable?  May  presentment  for  acceptance  he 
ssade  iB  other  cases?    Why? 

T4.  A  Is  holder  of  a  hill  drawn' upon  B  payable  ninety 
lays  after  date.    A  presoBta  It  for  accepUnce  which  la  refosed. 


IBS  NBOOTIABLB  PiLPBiL 


Mast  ▲  prescBt  the  bill  for  paymeiU  t*  mA  iMVW  «%»  iM 
Ik  •!««  t*  k«ld  C.  th«  drawcrT 

Tft.    At  wliat  date  aad  hoar  mast  preMBtraeat  tar  weeatUMf 
ha  mude?    Vo  whom  moat  preMBtment  b«  madef 

re.    Nam*  the  case*  Ib  which  preaeatmcat  tor  •ccaptaaea 
1b  excosed  or  waived? 


77.     What  la  aotice  of  dlahoaorT    Whca  and  to 
it  ht  glTen?    May  it  he  siTea  h7  mall? 

T8.  What  ia  protest?  Whea  moat  It  ba  glTaal  Wka  la 
aatteriaod  to  make  proteat? 

79.  What  maat  ths  proteat  coatalal  At  wKat  placa  ■oil 
tha  protest  be  made? 

Ml    What  la  meaat  by  Rrotest  for  better  aoearltyt 

•1.  Sappoae  700  hare  a  acta  with  aa  iaderaer  thereoa. 
State  all  the  stepa  aecessary  to  bold  snch  iodorser.  Sappoa* 
jroa  haye  aa  inland  bill.  Name  the  steps  aecessary  to  holi 
the  drawer  aad  Indorser.  Sappoao  It  Is  a  foroixa  bUL  Mam* 
tfea  atapa  aacaasarr  to  be  takea. 

CHAFVEB  THIBTBBOL 

A  What  la  meaat  by  discharge  of  negotlakia  pafarT  lt*t» 
th*  aaaaas  which  will  operate  as  discharge. 

tS.  Doea  tender  of  paymeat  operat*  aa  AlKharg*  of  tfta 
teatrameat  or  any  party  thereto. 

84.  What  la  the  effect  U  matarlal  altaratlMiY  WUt  •«> 
■tltataa  matarlal  altoratloat 


IHSZZ. 


(RefereneM  an  to  Mfltloiu.  !■  order  to  flad  aaj  anbjoet  ia 
Appendix  A.  U8«  the  table  oo  page  137;  or,  find  that  subjeet 
la  this  index  and  iboa  um  th«  refttrtncM  ix  tho  looi  netoa.) 


Acoeptasec^  mo,  ake,  *Vnmatmnk  for  •AceptaMi.'' 

defined,  39. 

kow  made,  40. 

presumed  whea,  41. 

•f  isoomplete  bill,  A 

after  non-acceptano%  43* 

after  maturity,  4I> 

kiade  of, 

general,  44. 
qualified,  44. 

of  check,  46. 

ooDtract  of,  80. 
Acceptance  for  beaor,  4ib 
Acceptor  of  bill. 

See    "Acceptaact.* 
Aeoommodatioa  papev,  4S» 
Account, 

referenee  to,  17. 
Alteration,  aa  real  defenae,  80}  at  dliehargi^  114 
Agent, 

bow  ihould  dfB,  iS. 
Ambiguous  inatnunent, 

treated  aa  bill  or  aoti^  m 
Amount, 

must  be  certain,  18. 

what,  recorerable  bj  Mdar,  U,  f?. 
Anomalous   indorser,   tOL 
Ante-dating,  Sl« 


|M») 


200  Negotiablb  Paper. 

•f  eoxtraeU  in  general,  1. 
how  differs  from  negotiation,  L 
eheck  or  bill  as,  17. 
Attoriej'a  fee, 

maj  b«  proiri4*d  fw,  iM, 


Baak  drafta, 

deilned,  7. 

negotiabiUiy  vf,  T. 
Bearer.    See,   also,   <^ords  of  NegotiaUUty,** 

when  instrument  pajaUa  to,  M. 
Bills  of  Exchange, 

deflsed,  3. 

negotiabilitj  «f,  t. 

foreign,  S. 

inland,  S. 

in  sets,  3. 
Bills  of  Lading, 

defined,  9. 

negotiability  of,  f. 
Blank  Indorsement.    See  '^donemniL* 
Bonds, 

defined,  6. 

megotiabiUtj  «^  9, 


CaneellatloB, 

as  dischargv,  IIS. 
Certificates  of  corporate  itodl« 

defined,  8. 

negotiability  of,  6. 
Certificates  of  deposit^ 

4efined,  6. 

negotiability  of,  S. 
Oertificatioa  of  eheck,  4^ 


Amebican  Commeecial  Law.         t01 

Okedu, 

defined,  4. 

Begotiai>llit7  of,  4. 

Bot  an  aasignment,  IL 

Mrtifleation  «f,  ifl^ 
Collateral  securities,  25. 
Collection,  costs  of,  18. 
Condition, 

prerents  negotiability,  17« 

IndorBements  upon,  6L 
Confession   of   Jud^^mcntt 

in  note,  26. 

hj   indorsee,   64. 
Consideration, 

presumed,  1,  S7. 

recital  of 

as  prerentlng  aegtytiability,  IT. 
not  necessary,  37. 

adequacy  of,  38. 

want  of,  no  defeni*  agaiasl  liold«r,  f L 
Contract  of  parties, 

of  maker,    8S. 

of  drawer,   84. 

«f  drawee,  8S. 

of  acceptor,  86L 

ot  indmu,  87* 


emissioB  «f,  8Ql. 
ante-dating,  81. 
post-dating,   SI. 
what  presumed,  82. 
Defense  against  holder  In  due  cotxrat, 
payment  before  maturity,  69. 
■et  off,  70. 
wamt  of  eoaeidentioa,  Tl. 


202  Nbgotiablb  Papeh 

failnn  of  ooiuldaratio^   TL 
fraud,  72,  81. 
theft,  7«,  81. 
want  of  deliverj,  Tli 
lack  of  authoritj,  7S, 
in  agent,  73. 
in  partner,  77. 
in  officer,  78. 
illegaUty,  75,  82. 
usury,   75,   82. 
infancy  of  maker,  19, 
forgery,  79. 
alteratioa,  SOL 
Delireiy, 

esiential,   89. 
presumed  when,  SIL 
transfer  by, 

warrantiea  in,  88. 

(See,   also,  <<Wbrd«  of  MgotiaUIiiyJ 
Demand    paper,    15,   20. 
Discharge, 
of  paper, 

meaning  of,  lIOl 
causes,  111. 
«f  parties, 

what  operates  as.  111,  III. 
IXahonor, 

See  "Presentment  for  aeeeptanet* 
"presentment  for  payment." 
"notice  of  dishonor,"  "protest,* 
Doubtful  instrument, 

treated  as  bill  or  not*,  82. 
Drafts, 

generally  mm,  *^ills  of  ExehaaM." 
bank,  7. 
Drawee, 

4«flB«d,  8. 
cwtnolol^ML 


Amesigan  Oommbsoial  Law.         803 


Dl'AWVIf 

daflmd,  S. 
contract  of,  17. 


Elements  Miential,  15. 
Endorsement,  See  '^ndo: 
Exchange,  18. 
Elzemptioofl, 

waiyed  in  not«,  27* 
Execution,  in  blank,  t4. 

bj  afent,  S5. 


Figures, 

words  gorem,  St. 

alteration  of,  80,  IIL 
Formal  requisites,  15. 
Fund, 

raferenee  to,  17* 


Qraoe,  dajt  ef, 

allowed  hj  law  mercliani,  1. 
■ow  abolished  in  moat  places,  L 


History  of  segotiable  instnunents,  1%  1^ 
Honor,  paTment  for,  4t. 


niegaltty, 

when  a  good  icf  snst^  tl. 

when  not,  76. 
Indorsement,  see,  also,  'K3ontraei  of  Partlst." 
negotiation  bj,  50. 


Neootiablb  Papul 


aeeompliihsi,  01. 
partial,  63. 

transfers  incidents,  64. 
presumption  conctrainit  ML 
to  "cashier,"  66. 
striking  out,  65. 
kinds  of,  67. 
•pedal. 

defined,  67. 
warranties  Ib,  tf* 
Uank. 

defined,  61^ 
warranties  in,  87* 
foalifled, 

defined,  69. 
warranties  iOf  99, 
fsstrietive, 

defined,  60l 
aonditional, 

defined,  81. 
•Bomalous, 

defined,  90. 
warranties  la,  M. 

in  general,  0f . 

when  obtained  la  dns  eo«iiM»  61  to  tIL 
fnhncj, 

defense  of,  78. 
Installments, 

Bote  payable  la  to  a^otUbli^  11^ 

J. 

9mf    lent  asii^  f8L 


Miaorftj  a  defense,  78. 
Money, 

instrument  must  be  payable  la,  li. 


AlfTOfnAN  OOMMEBGIAL  LlW.  106 


M«otiabUit7  <  IL 


Ncgotlabilitj, 
defined,  1. 

ti  promistOTj  sttlMy  %, 
bills  of  exchang*,  !» 
•hecki,  4. 

certifleatM  of  depocit%  I. 
kondi,  6. 
bank  dnifts,  7. 
•orporat*  stock,  t. 
Mils  of  lading,  9. 
warehouse  receipts.  111 
mortgages,  11. 
eesential  element*  in*  Iflk 
Negotiation, 

defined,  1,  50. 

how  differs  from  asfligmnenl,  1« 
kinds  of,  61. 
kow  accomplished,  52. 
Note.     See  "Promissory  not*.** 
Notice  of  dishonor, 

when  necessary,  101. 
when  sufficient,  102. 
when  excused,  103,  104. 
whuk  wmiT«4,  10ft. 


OmiarioB  of  iata, 
effect  of,  SO. 
Option  to  pay  moaey  or  something  else,  tM» 
Origin  of  negotiable  paper,  13. 
Ord«r.    Ses  "Words  of  negotiabiU^." 


20i  KBOOTIABLB  PAPEIk 

p. 

Pajmeiit  for  bonor,  49. 
Presentment  for  acceptance^ 

when  necessary,  97. 

what  aufficient,  OS. 

when  excused,  99. 

dishonor  upon,  100. 
Presentment  for  payment  to  malm*, 

not  necessary  to  charge  maker,  9S. 

when  payable  at  certain  place,  9S. 

necessary  to  charge  indonen,  94. 
and  drawers,  94. 

what  sufficient,  98. 

when  not  required,  98. 
President  of  corporation, 

how  should  sign,  SS. 
Print, 

instrument  may  be  In,  19, 

writing  prevails  over,  32. 
Post-dating  instrument,  31. 
Procedure.     See  "Payment,"  'Tresentment  for  aoeeptance. 

"Notice  of  dishonor,"  "Protest." 
Promissory  notes, 

defined,  2. 

negotiability  of,  t. 

elements  in,  15. 
Protest, 

when  necessary,  lOdk 

who  may  make,  107. 

manner  of,  108. 

when  dispensed  with,  lOf. 


Qualified  acceptance, 

what  constitutes,  44. 

effect  of,  45. 
Qualified  indorsement     8ee  "Indorsemeni." 


!A.MMBT<UW  OOMMBICIAL  LlW.  lOT 


RMtrietlr*  indorsemeiil.    Sec  "IndoiMinail.' 
Retention  of  bill  aji  acceptance,  42. 
Rules  •!  construction,  82. 


Seal  aa  affeetlBC  negotiability,  t$. 

Set  off,  70. 

Seta,  bills  in,  I. 

Sight  paper,  20l 

Signature, 

doubtful,  bow  eanstmed,  tS. 

necessary  to  negotiable  paper,  IC 

may  be  In  lead  pencil,  16. 

nay  be  fictitious  or  situmsi,  11^ 

I7  partaeraUf^  It. 


Tbief,  title  from,  7S. 
Time, 

must  be  certain  to  oeenr,  21. 

what  is  detenninabls^  2L 

kow  computed,  05. 


Uncertainty  of  amount, 

destroys  negotiability.  It. 

what  not  deemed  to  be.  It. 
Uncertainty  of  time  arriving, 

destroys  negotiability,  21. 
Unconditional,  promise  or  order,  17. 
Undated  instrument, 

presumed  of  what  date,  32. 
Uniform  negotiable  instrument  law* 

history  of,  14. 


906  Negotiable  Pafb^ 

V. 

Value,  lee,  also,  *K)onsideratio«,'* 

holder  must  give^  6S. 
•Talue  received," 

■ot  aaoeBsary,  ST. 

Waiver  of  exemptiozu  Ib  BOtib  ITi 
Warehouse  receipt, 

defined,  10. 

negotiability  of,  10. 
Words  govern  figures,  32. 
Words  of  negotiability, 

what  are,  22. 

neceesity  of,  22. 

when  instrument  payable  "to  order,**  2SL 

when  instrument  payable  "to  bearer,"  M, 
Writing, 

negotiable  paper  must  be  in,  16,  10. 

includes  print,  16. 

may  be  in  lead  pencil,  16. 

indorsement  must  be  in,  52. 

acceptance  must  be  in,  40. 


^^rje 


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LOS  -rnQM^ 


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